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      This is your public service 1-stop-shop for Alaskan and Canadian Arctic energy commentary, news, history, projects and people. We update it daily for you. It is the most timely and complete northern energy archive anywhere — used by media, academia, government and industry officials throughout the world. Northern Gas Pipelines may be the oldest Alaska blog; we invite readers to name others existing before 2001.  -dh


Alaska Taxes

12-25-15 Rhetorical Question: Isn't Alberta Alaska's Canary In The Coal Mine?

25 November 2015 8:09am

Isn't Alberta Alaska's Canary In The Coal Mine?

Alaska Headlamp 

"Wrong every step of the way."

Bill Walker, Alaska Governor, Reserves Tax, Failure, Alaska Journal of Commerce, AkHeadlamp, Morning Headlamp, Alliance, Photo by Dave HarbourIn the wake of the latest self-inflicted challenge for the AKLNG project, the Alaska Journal of Commerce published an editorial chronicling Gov. Bill Walker's (NGP Photo) failings and hypocrisies dating back to his time on the campaign trail.


This is a time of low energy prices and severe industry cost cutting, right? 

Why, under these circumstances, would Alberta's new Premier be attacking carbon on her way to the Paris Climate Change Conference?  

*Why would the Governor of Alaska have recently threatened investors interested in monetizing Alaska's vast gas reserves with a 'reserves tax'? 

Indeed, why wouldn't these leaders be taking extra steps to provide an inviting investment climate for those who sustain the very government that attacks them?

Yes, these are rhetorical questions, answers to which diminish one's confidence in one's government.  Alaska's governor has demonstrated a visceral dislike for industry and a desire to take control of the means, allocation and distribution of production.  Alberta's premier is going, "all in" with the global warming agenda whose real objective is to, "destroy capitalism".

*No, we don't give Alaska's governor a 'pass' on this one solely because he later rescinded / postponed the gas reserves tax threat.  First, he's not expressed any remorse for initiating the threat, implying that the threat is ongoing.  Second, the mere threat of a new tax in a low price environment when investors are considering a $45-65 billion investment either pollutes the investment climate intentionally, or stupidly.  

In either case, the result is the same: a governor and a premier -- charged with husbanding vast resource wealth and protecting the public interest -- acting in ways that will increase consumer utility / energy costs, while diminishing investment, employment, economic vitality, and government royalty/tax income.    

Alaska's industry layoffs have not yet taken hold in force.  But absent wiser gubernatorial leadership, an economic recession could be just around the corner.  After all, Alaska's government and economy are much more dependent on oil income than Alberta is, and the ultimate pain in the 49th state could be much worse.   -dh 

Group layoffs in Alberta surge past 18000 workers
“Of the 18,006 employees impacted this year, approximately 78 per cent are related to layoffs by the oil and gas sector 

11-23-15 Can A "Business As Usual" Attitude Overcome Alaska's Financial Crisis?

23 November 2015 4:37am

EIA: U.S. proved oil and natural gas reserves rise in 2014

Comment: Premier Notley, like President Obama is taking actions that can be touted at the upcoming Paris Climate Change Conference where the top UN climate change official has said the true goal of environmental activism is to "destroy capitalism".  -dh

See today's Alaska Headlamp

Today, in the United States Supreme Court, nine Alaska organizations filed an Amicus Brief ....

Calgary Herald by Stephen Ewart. 

Alberta Premier Rachel Notley effectively put the first limits on unchecked growth in the oilsands — through a 100 mega-tonne annual cap on greenhouse gases....


Can A "Business As Usual Attitude" Overcome Alaska's Financial Crisis?

 Can Alaska be known as a place where, "a deal is a deal" and as a state not known to be, "its own worst enemy"?

Commentary by

Dave Harbour


At a time of Alaska state fiscal crisis, maintaining high state and local government employment is counterintuitive if not obvious.  

Additionally, the Governor has brought in a new Medicaid entitlement program whose costs may ultimately be supported by Alaskan businesses and perhaps individuals -- and which will be sure to attract even more "ne'er-do-well" beneficiaries to the state at unknown additional costs.

Additionally, the governor is working with the Obama administration to bring dubiously vetted Syrian immigrants to the state, five year resettlement expenses of which are estimated to cost taxpayers almost $65K each.  For Alaska, because of its remoteness and high costs, that number is probably understated.

"You Can't Make This Stuff Up"

Then, last month, the Governor called the Legislature into special session.  

To deal with an enormous annual operating budget deficit?  No.

To work toward a sustainable annual budget by cutting low priority programs and trimming others?  No.

To pass "fiscal certainty" legislation, providing Constitutional protection to the Ak-LNG project sponsors?  No.


He called legislators into session to have them consider a new tax on those wishing to invest in one of the world's largest ever LNG export projects, then withdrew that proposal.  

And, he had them consider increasing the state's equity stake in a risky pipeline/LNG project whose feasibility is unproven, whose customers are uncommitted and whose cost to the state, conservatively, would ultimately exceed $15 billion.

And, he provided legislators with no packet of information clarifying the purpose of their special session.

And, he neglected to inform them that he had dictated to the 'independent' Alaska Gasline Development Corporation board his desire to form subsidiary corporations.

And, he refused to permit certain state officials to sign acceptable Ak-LNG confidentiality agreements -- a defiant act that could well stop progress on the entire project.

And, this was on top of his earlier 'request' of the patient producer-sponsors that the Ak-LNG project study the option of building a 48" vs. the planned 42" pipeline, an initiative that likely cost the project 6 months of delay and an overall price increase.


Here are the most recent monthly employment statistics posted by the Alaska Department of Labor (AKDOL).

Today we will explore some relationships between responsible / irresponsible state budgeting vs. energy and other investments.

We note in these AKDOL statistics, the familiar, annual Alaska trend of increased school employment as summer ends and decreased commercial fishing, processing, construction and tourism employment as winter begins.

We are not economists, but have absorbed AKDOL stats for many years.

Anyone who has, knows that Alaska is a very seasonal place of employment for "labor intensive industries" like tourism, commercial fishing, construction, etc.

Therefore, to see post-summer season declines in these categories is no great shock though we know that a continuing, gloomy world economy could affect demand for their products and services as well and affect Alaska's economic health in a coming season.  

Oil and gas industries are "capital intensive" and typically have fewer albeit more highly compensated employees filling positions that are not very 'seasonal' at all.

We never forget that those few employees create great wealth for the state and national economies, as well as for their employers.

In fact, these employees' labors pay for most of the infrastructure used by the "labor intensive industries" ... also, the education and local government sectors. 

As world wide commodity demand decreases, Alaska can be hit hard where it hurts.  Fewer, highly paid non seasonal oil and gas jobs affect the year-around economy.  

In a low demand, commodities environment, the investors make less but they also pay less tax and royalty revenue to the state, due to slowing production and lower prices per unit.  

In a state choosing to become 90% dependent on oil and gas taxes and royalties, small changes in the price per barrel of oil can lead to large government deficits (i.e. as now), or unexpected, windfall surpluses.

Elected officials, therefore, need to be particularly concerned about and protective of the health of this oil and gas category--the very source of state wealth. 

Alaska is in a challenging position now with oil prices hovering at below 50% the price levels of 18 months ago.  

Thus, we would have expected responsible state and local government leaders to have begun cutting significant numbers of employees as well as shaving program costs to a sustainable level nine months or a year ago.  Some have said, "You can't cut yourself out of this predicament!"  What we've seen, however, is an increase in government employment from the beginning of the fiscal year to the present time--whose relationship to seasonal employment is not clear.  A minimal effort would be to -- at least -- not add any new programs or employees.

For the most part, this AKDOL report, viewed in isolation, seems to reflect a 'business as usual' attitude on the part of state and local budget policy makers.  They* are confronting a huge budget deficit by spending the last dollars in the State's available savings accounts--and counting for the long term on current, short-term low interest rates to fund debt.  (*We say, "they" because so much of certain local municipal operating and capital projects are funded from the unsustainable state operating and capital budgets.)

Perhaps a budgetary discipline escaping our untrained eyes has already been put into motion and will become more visible in future AKDOL reports.  However, the annual state operating budget shortfall ($3.5 billion, v. 750k population) is so serious and public news releases of government cuts and fiscal discipline are so muted that we fear the worst.

We fear that insufficient steps are being taken to create a balanced, sustainable state budget and at the same time retire a nearly $10 billion unfunded liability of the state employee pension program.  

We fear that this scenario -- if not immediately and decisively corrected -- creates a toxic, anti-investment climate in Alaska that could repel investment of all kinds for decades at a time when government needs to build an investment climate based on logical and not political economic principles.

As to a major Alaska north slope gas monetization project, such as Ak-LNG, one logically concludes: The producer proponents of the Ak-LNG project have demonstrated extraordinary patience, diligence and dedication in dealing with government while trying to evolve the project into feasibility.  We also observe that while the Ak-LNG project, if proven feasible, could someday begin transforming gas reserves into wealth, it could not do so before 2025.  This economic injection would come too little and too late to be of much help in facing the current financial crisis.

As we evaluate State of Alaska actions related to the Ak-LNG project, we believe most of that activity would fall into categories like 'not helpful' and 'self serving' and 'time wasting'.

The best, good faith effort Alaska could now contribute to the Ak-LNG project, would be to get its own financial affairs in order -- and not at industry's expense.

It could also begin cooperating with Ak-LNG sponsors in meaningful ways:

  • conforming to private confidentiality agreement terms
  • eliminating threats of increased taxation 
  • not being the cause of project delays 
  • providing a Constitutionally protected cloak of fiscal certainty to gas and oil producers that invest in the Ak-LNG project.

In short, why wouldn't Alaska want to become a reliable investment climate that transforms its 'Business As Usual Attitude' into a focus on 'Can Do!'

Why wouldn't citizens of the "Last Frontier" want to live in a place where "a deal is a deal" and where their government is not known for being, "its own worst enemy"?


November 23, 2015

U.S. proved oil and natural gas reserves rise in 2014

  • Natural gas proved reserves rose 10% in 2014, setting a new U. S. record of 388.8 trillion cubic feet
  • Oil proved reserves rose 9% in 2014, exceeding a U.S. total of 39 billion barrels for the first time since 1972
  • Sustained lower prices for crude oil and natural gas in 2015 have curtailed oil and natural gas drilling and have reduced operating economics; this is anticipated to reduce end-of-year 2015 oil and natural gas reserves

U.S. crude oil proved reserves increased in 2014 for the sixth year in a row with a net addition of 3.4 billion barrels of proved oil reserves (a 9% increase), according to U.S. Crude Oil and Natural Gas Proved Reserves, 2014, released today by the U.S. Energy Information Administration (EIA). U.S. natural gas proved reserves increased 10% in 2014, raising the U.S. total to a record 388.8 trillion cubic feet (Tcf).

  Crude oil and lease condensate
billion barrels
Natural gas
trillion cubic feet
2013 U.S. proved reserves 36.5 354.0
Net additions to U.S. proved reserves +3.4 +34.8
2014 U.S. proved reserves 39.9 388.8
Percentage change 9% 10%

At the state level, Texas had the largest increase in proved reserves, 2,054 million barrels (60% of the nation's total net increase) in 2014. Most of these new oil reserves were added in the Texas portion of the Permian Basin and the Eagle Ford Shale play. North Dakota had the second-largest increase—a net gain of 362 million barrels—most of which were added in the Bakken tight oil play of the Williston Basin.

Pennsylvania added 10.4 trillion cubic feet (Tcf) of natural gas proved reserves (the largest net increase for any state in 2014) driven by continued development of the Marcellus Shale play. Texas added 8 Tcf of natural gas proved reserves, mostly from the Eagle Ford Shale play and natural gas associated with the state’s gain in oil reserves in the Permian Basin. Natural gas from shale formations was 51% of the U.S. total of natural gas proved reserves in 2014.

U.S. production of both oil and natural gas increased in 2014. Production of crude oil and lease condensate increased about 17% (rising from 7.4 to 8.7 million barrels per day), while U.S. production of natural gas increased 6% (rising from approximately 73 to 77 billion cubic feet per day).

Proved reserves are those volumes of oil and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

U.S. Crude Oil and Natural Gas Proved Reserves, 2014 is available at: http://www.eia.gov/naturalgas/crudeoilreserves.

The product described in this press release was prepared by the U.S. Energy Information Administration (EIA), the statistical and analytical agency within the U.S. Department of Energy. By law, EIA's data, analysis, and forecasts are independent of approval by any other officer or employee of the United States Government. The views in the product and press release therefore should not be construed as representing those of the Department of Energy or other federal agencies.

EIA Program Contact: Steven G. Grape, 202-586-1868steven.grape@eia.gov

EIA Press Contact: Jonathan Cogan, 202-586-8719jonathan.cogan@eia.gov


U.S. Energy Information Administration
Contact Us | Washington, DC | www.eia.gov

10-26-15 Alaska LNG Legislative Struggle

26 October 2015 6:07am

What do you think Alaska should do?

Commentary by

Dave Harbour


Yesterday a friend from Canada called after reading our rare, Sunday email alert.  

Earle said, after watching some of the Alaska special legislative session weekend meetings on line, "Looks like your politicians have gotten themselves in over their heads.  What would you do, Dave"?

Of course, Earle was referring to the state's fiscal crisis: the $3-4 billion annual deficit; the diminishing Trans Alaska Pipeline throughput; billions in unfunded state employee pension liability, and the out of control spending by a bloated bureaucracy and social service system.

If that weren't enough of a challenge, the governor has been threatening Alaska's biggest investors with a predatory reserves tax on the one hand--to "leverage" producer gas marketing via an LNG project.

On the other hand, he is pressuring the legislature to draw down remaining savings accounts to cover previously made and current commitments to Trans Canada for their early participation in the Alaska LNG project.  

In addition, he doubles down by wanting to invest billions more for a higher equity position in the proposed Alaska LNG project.

His rationale sounds something like this: "We could make hundreds of millions a year more by maximizing our equity investment in the LNG project."  (i.e. someday, perhaps?)

As if a state teetering on the brink of fiscal insolvency should be gambling billions of precious savings along with probable, additional bond indebtedness on a risky gas transportation and marketing venture.  

That LNG gamble is hard enough for experienced oil and gas companies to survive profitably in today's volatile economic times.  But, just as the Soviet Union found when it followed Marx's advice to control the means, delivery and distribution of production, Alaska's governor seems fully confident that under his leadership state ownership in a massive $45-65 billion project is not Quixotic but brilliant financial strategy.

"I'm not smart enough to have all the answers," I told Earle.  "But if I were in Juneau this week I would surely be asking some questions.  Granted," I said, "some would be questions based on experience and some may found to be based on ignorance."

When he asked about what my questions of the governor's experts might be, I gave a few bullets that went something like this:

  • If the state buys out TransCanada with the goal of profiting from greater equity investment, have you discounted that profit by virtue of having state bureaucrats supervising massive investment in a highly technical project?
  • You say you would, "hire the experts to coordinate the state's equity investment", but do you really think that state employees and the governor would monitor and direct their work as productively and apolitically as highly experienced, private sector pipeline managers?  If not, how would you discount the state's actual financial returns.
  • With the state, "having a seat at the table", what, if any, demands would be placed on participants as a result of the state's open meetings laws?  What could be the impact of Freedom of Information requests on the project if the state has any degree of equity participation?  
  • Is it possible that, just as the governor has interrupted the process to demand the consortium study the feasibility of expanding the project from a 42" pipe to a 48" pipe, he could make similar, costly demands through the state's representatives overseeing its equity investment...time and time again?
  • Pipeline regulatory agencies normally establish "Just And Reasonable" tariffs and would demand that the state pay for the marginal cost increase of building a 48" vs. a 42" pipe under the well established precept that the, "cost causer should be the cost payer.  Has the state agreed to reimburse other participants for their costs/losses in pursuing his demand to study the bigger inch pipe?"
  • If the project builds a 48" pipe at the state's request, with spare capacity at first for lack of shippers, should not the state pay the project a separate tariff for spare capacity it has demanded as the "cost causer"?
  • How does the governor envision insulating the AGDC state representatives of our equity "investment" from political pressure to arrange favorable consideration for contractors or arrange politically inspired employee hires?  Should the governor's prior associates be disqualified from project involvement due to an appearance if not reality of conflicting interests?
  • The companies involved in AkLNG require some evidence that the state will not expropriate their investments via taxation after the world-class AkLNG project is built.  This is an element of "fiscal certainty" requiring Constitutional amendment.  In response to that requirement, the Governor has offered support for "fiscal certainty" of the natural gas pipeline/LNG project but not for the companies' oil investments.  Wouldn't this be a "show stopper", since without oil tax guarantees, the state could unreasonably (i.e. even retroactively) tax oil investors after their gas investment is made? 
  • Can the Administration present to the legislature a reasonable plan for financing its desired short and long term investment in the AkLNG project--along with realistic assumptions and alternatives in more detail than is reflected in the Black and Veatch report?
  • How much of the state's earnings reserve and CBR accounts do you anticipate needing for what portion of the FED and PRE-FEED?
  • I assume the governor is aware of the PERS/TERS unfunded employee pension liability which is 2-3 times larger than the annual $3-4 billion annual deficit.  Is it the governor's judgment that the state is more ethically guided to use savings and borrowed money for investment into an unsanctioned gas pipeline than to fully fund our employees' unfunded pension liability?
  • I thought "equity", as in an AHFC-financed house down payment, required earned/saved funds, not "borrowed or gifted" funds.  Do bond indentures allow and is it ethical for the state to use borrowed money for the equity portion of a 30/70 debt equity financed project?   
  • Please provide a detailed response.  1) We seem to be within 3 years of not having savings to fund annual deficits...and, a few months' less time if we pay cash for AKLNG / TC expenses; and  2) The pipeline cannot begin providing net income to owners until it is operating, about a decade from now.  Therefore, the project cannot be generating help for the operating budget until long after we hit the fiscal cliff; and 3) even if all goes well and you answer the above issues well, the diminished throughput of TAPS could result in a shutdown anytime within the next few years, sometime short of a possible 2025 pipeline startup.      MY QUESTION IS: How can Alaska afford the extravagance of a $ multi-billion pipeline investment from now going forward: a) that does not involve risking the precious permanent fund corpus; b) that does not involve massive borrowing that makes world-class debtors of our children; c) that leaves our employee unfunded pension fund liability unable to keep faith with retirees; and d) enables us to maintain a deficit-free operating budget?
  • The Administration advocates buying TC out largely but not exclusively because of the state's "lower cost of debt" than TC's 7.1%.  Can you envision a situation wherein the state's diminishing credit worthiness as determined by rating agencies causes the state's cost of debt to exceed TC's cost of debt?  (i.e. if the fiscal gap is not reasonably and timely plugged?)
  • In view of the above, what kind of additional oil industry taxation do you contemplate in a low price environment that hinders oil industry investment just as it does our own coffers?
  • Do you wish to provide the Legislature during this special session with a multi-year spending cut plan, roughly based on ISER's recommendations, that could show us how the Administration could prudently make the LNG payments required while avoiding some of the unintended consequences named above?
  • Lastly, do you believe it is prudent for a state to become engaged in the risky game of LNG transportation in competition with a highly experienced private sector in an unpredictable world market?  Do you believe the risk tolerance level of our citizens is equal to the governor's...or, for that matter, SHOULD a state's risk tolerance level be equal to that of major oil and gas exploration, production, pipeline / tanker transportation and marketing companies?


After asking these questions one may be left with some  discomfort that the Alaska Administration really is, as my Canadian friend, Earle, observed: "in over its head".

After working for about 50 years in government, military, small business, corporations, education and non profits and studying for a time at the feet of the late MBO Guru, Peter Drucker, I am left with a great feeling of pity and discomfort for Alaska.  

Many legislative leaders in the first hours of the special session acknowledged the huge complexity of the challenge and the lack of a plan from the Administration.

During my years of both hard and pleasant 'knocks' I emerged with one important, hard won lesson: if a project seems too complex...if it is too hard to explain ... if after briefings, observers are left with even more questions than before ... it is wise to consider how to make the complex simple again.  Go back to the drawing board.  Instead of being motivated by "having a seat at the table or chasing possible but risky profits", perhaps it's time to reingage wisdom and think smartly: "How can I support those who do have the experience, determination and resources to get the job done?"  (Remember Senator Duleavy's unanswered question today: What is the state's priority: maximizing financial return to the state or providing affordable {i.e. code word for subsidized} energy to residents?)

This Alaska LNG equity idea may be as complex and contentious as taking gas RIK instead of the easy RIV -- partly because the Legislature, representing citizens, have not been adequately briefed on how their citizen-elected governor plans to pull off the simultaneous challenges named in the questions above.  

Thus, the average citizen is likely to be completely blinded by the complexity ... including what we believe are unrealistic, misleading "assumptions" in the Black & Veatch study (i.e. which we detail here) upon which the Administration bases its assertion of money galore falling out of an LNG equity investment.

Do my Alaska readers agree that: a multi-billion dollar payment of precious Alaska tax dollars should not be much more risky than a AAA  bond purchase?  One could wisely hold that public money is not for risk.  Public money is for the necessary operation of a reasonable government at a price within the government's means that does not overtax taxpayers--including oil companies.  Public money does not belong to a governor or a legislature; it is the precious treasure of citizens who give it in trust to trusted public officials.

This LNG equity idea could be a huge public seduction that, if not curtailed -- at least prior to a Final Investment Decision (FID) -- could see Alaska in default, deflect future large industry investments, cause immense family suffering and job loss and forever scar Alaska's age-old, respected reputation as "The Last Frontier".

Remember that while consultants might say the major investments will occur after FID, there will then be risks of project completion, cost overruns and durability of gas purchase agreements in a volatile world that are underpinning bond indentures.

We wish our elected representatives well as they negotiate the complex and dangerous waters between Scylla and Charybdis; and, we pray that their decisions on our behalf will be both wisely and simply executed.


Final observation for Legislators:

This is an intensely complex arrangement without involvement of a public entity.  With a public entity, we experience additional complexity involving many factors, including that of confidentiality agreements and internal disputes between the state as a gas owner and the state as a pipeline owner.  You will never be far from disputes, for example, between Municipalities and property revenue, "in lieu of taxes", pipeline valuation, etc.

If you have been concerned about your complex decision making during this process, and/or concerned about the expertise required for you to make enlightened decisions -- just imagine how politically intense and complex your involvement (or that of your unknown successors) could be in the years ahead -- particularly as powerful, constituent special interest groups evolve over time.  

Is having ongoing legislative/political responsibility over one of the world's largest ever construction projects a responsibility you believe the legislature and governor should have from this time on?  Or, should you be merely supporting the private sectors proper execution of the project?

How much time, year after year, will Alaska LNG equity participation demand away from your other legislative duties?  What is that cost and benefit, in your view?

Did the Constitution really anticipate that the governor and legislature would have ongoing ownership, supervisory and legislative responsibilities over a high-risk private sector project?


Alaska LNG project readers will want to monitor the Alaska legislative floor sessions and hearings today -- right here!

Here are today's relevant links from former Alaska gasline federal coordinator, Larry Persily:


Larry Persily News Briefs....

Oil and gas news briefs for Oct. 26, 2015

Alberta faces $6.5 billion budget deficit due to low oil prices
(Calgary Herald; Oct. 24) - The collapse of crude oil prices that led the government to warn Albertans last spring to brace for a multibillion-dollar hole in provincial revenues will result in the recently victorious New Democratic Party introducing a budget update Oct. 27 that forecasts the largest-ever deficit in the province’s history. The Finance Minister hinted this week the deficit will be just shy of $6.5 billion — nearly $1.5 billion more than the March forecast. Resource revenue was projected to fall from $8.9 billion to $3.6 billion this year and income tax revenue was expected to drop with it.
It’s a gigantic hole — and analysts say there aren’t any palatable solutions in sight. The Parkland Institute, a University of Alberta public policy think-tank, didn’t mince words in a report this week. “The implications of this unattractive fiscal situation are obvious,” noted author Melville McMillan, professor emeritus and fellow of the University of Alberta’s Institute for Public Economics. “Albertans will be faced with significant cuts to provincial public services or they will face higher taxes.”
Alberta’s fiscal situation is “very dire,” said University of Calgary economist Ron Kneebone. “There’s very little prospect for oil prices to dramatically increase over the near term, which means the government has got this huge fiscal hole in their budget that is not going to be filled anytime soon.” Kneebone suggested the new government “start filling it with some combination of tax increases and spending cuts,” although no one is expecting large tax increases or huge program cuts to be unveiled this week. Alberta’s budget year runs April 1 to March 31.
Tokyo Gas adviser predicts drop in Japan’s LNG demand
(Reuters; Oct. 26) - Japanese liquefied natural gas demand will dive by 17 percent, or 15 million metric tons in five years to below 80 million tons a year as more nuclear reactors are restarted, a top executive of Tokyo Gas said Oct. 26. "Last fiscal year, the imported volume of LNG was 89 million tons. By 2020, that demand could be reduced," said Shigeru Muraki, executive adviser of Japan's top gas utility, speaking on the sidelines of the Singapore International Energy Week.
He said 15 to 20 nuclear reactors could restart in about five years. Other estimates have put the number of nuclear restarts in the next few years as low as seven. All of Japan's nuclear reactors were shut down following the 2011 tsunami, with the country restarting only two as of this fall. Despite nuclear restarts for power generation, Tokyo Gas is looking to add 2 million to 3 million tons of LNG a year to its own annual offtake of 13 million tons as it expects demand from its customer base to increase, Muraki said.
Muraki also said Tokyo Gas will continue to use long-term contracts for its basic supply, but he expects traditional sellers to provide more flexibility to buyers, including not limiting contract cargoes to a single destination. "I don't think traditional sellers will continue to stick to the traditional way of doing contracts. For instance, in the U.S., our LNG contract is based on long-term supply but has flexibility in the destination," he said.
Gazprom budgets for European gas sales to average $5.45 in 2016
(Bloomberg; Oct. 23) - Gazprom, the world’s biggest natural gas exporter, is planning for the lowest price for its fuel in its main European market in more than a decade. The state-run exporter is drafting its budget for 2016 with preliminary estimates for gas prices outside the former Soviet Union of about $200 per 1,000 cubic meters ($5.45 per million Btu), said two people with direct knowledge of the matter who asked not to be identified because the information is private.
That compares with the company’s estimate of an average price for the region, which covers Turkey and Europe outside the Baltic States, in 2015 of $238 per 1,000 cubic meters and $349 in 2014 ($6.60 and $9.70 per million Btu, respectively). Gazprom, which supplies about a third of Europe’s gas and relies on exports of the fuel for 40 percent of its revenue, is facing falling prices for its export sales as most of its contracts are linked to oil. Brent crude has lost 16 percent this year after a 48 percent fall in 2014.
Gazprom is also facing increased competition as the U.S. prepares to export its first liquefied natural gas from the Gulf Coast. “Gazprom’s forecasts look reasonable,” Alexei Kokin, an energy analyst at UralSib Financial Corp. in Moscow, said by phone Oct. 23. Russia has the capacity to maintain its market share in Europe given lower prices next year even amid the predicted glut in LNG, he said.
U.S. gas exports to Mexico average record 3.3 bcf a day in July
(The U.S. Energy Information Administration; Oct. 21) - Growing U.S. gas pipeline exports to Mexico are beginning to gradually displace Mexico's liquefied natural gas imports, as new U.S. pipeline capacity is brought online and connecting pipelines in Mexico are ramping up to full capacity, the U.S. Energy Information Administration reported Oct. 21.
U.S. exports to Mexico set a monthly record high in July, averaging 3.3 billion cubic feet per day, according to EIA data, and averaged 2.7 bcf a day in the first seven months of this year, 35 percent higher than in the same period last year. In contrast, Mexico's LNG imports were 7 percent lower in the first seven months of 2015 as compared to the same period last year, according to data from Mexico’s Secretaria de Economia.
Before the strong growth in the U.S. shale production, Mexico considered LNG imports as a viable alternative to offset declining domestic production and expected limited growth in pipeline imports from the United States. With the rise of U.S. shale production and a decline in U.S. gas prices in recent years, the need in Mexico for LNG imports decreased. As a result, LNG regasification terminals are operating below capacity.
Norway on track to hit new record for gas production this year
(Bloomberg; Oct. 21) - The Troll A platform rocks as North Sea waves pound its gigantic concrete legs, but monitors inside the control room show a steady flow of gas continues unabated — enough to meet the needs of 10 million homes in Europe. Norway is on track for record gas production this year after Statoil put an end to technical issues that limited Troll’s capacity. And deep within the platform 40 miles offshore, newly installed compressors stand ready to maintain the field’s capacity well into the next decade.
Statoil is investing in its biggest gas field as the opportunity, but also the competition, expands in the European market. Demand in the region is growing for the first time in years, while safety concerns constrain output at Europe’s biggest onshore gas field in the Netherlands. At the same time, prices are under pressure as Russia boosts gas deliveries to Europe and increasing numbers of liquefied natural gas cargoes arrive from the Middle East and Africa.
Troll is a monster by any definition. It’s Norway’s biggest gas field, accounting for almost a third of production, underpinning its position as Europe’s biggest supplier after Russia. Its platform — the tallest structure to have ever been moved by human beings — can deliver 4.2 billion cubic feet of gas each day. Compressor breakdowns that reduced flow have been resolved, Statoil said, helping the country to increase output. A new record of more than 4.1 trillion cubic feet of gas is possible from all of Norway’s fields this year.
India’s LNG importer pays $70,000 per day for unused charters
(Live Mint; India; Oct. 22) - Petronet LNG, India’s biggest liquefied natural gas importer, is shelling out more than $6 million every quarter in demurrage charges for ships idling because its public-sector customers are refusing to buy expensive imported gas. The company is taking only 68 percent of the volumes it agreed to in 25-year contracts with RasGas of Qatar after a slump in global energy prices led to gas being available in the global spot market at roughly half the contract rate.
State-owned GAIL India, Indian Oil and Bharat Petroleum had committed to buy all of the 7.5 million metric tons a year of LNG that Petronet signed up to import from Qatar. But with falling global prices, they have opted to buy gas on the spot market rather than use the long-term LNG deals, senior officials said. The reduced offtake by the buyers forced Petronet to cut its purchase from RasGas, which resulted in frequent idling of the ships it had chartered for ferrying gas from Qatar to its import terminal in Gujarat.
But as per the contract, Petronet continues to pay about $70,000 per day for the unused time — totaling more than $6 million per quarter. While spot-market LNG is available at $7 to $8 per million Btu, the price under the RasGas long-term contract is close to $13. Pricing under the contract is linked to the previous 12-month Japan Crude Cocktail oil benchmark based on average prices of the past 60 months. That five-year average has prevented India from reaping the benefits of the steep drop in oil prices of the past year.
Companies hold attractive stakes in Papua New Guinea LNG
(Bloomberg; Oct. 22) - The record $24 billion offered for Australian oil and gas companies this year is less about assets in that country and more focused on its smaller neighbor — Papua New Guinea and ExxonMobil’s liquefied natural gas project there. Both Australia-based Santos, which rejected a buyout bid Oct. 22, and Oil Search, which declined an offer last month, have stakes in the Exxon-led project that’s seen by Sanford C. Bernstein & Co. as one of the best assets to own amid low energy prices.
The $19 billion project started production last year and is a bright spot in a battered energy sector because of its low cost and expansion opportunities. “It’s the crown jewel,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein, said by phone. “It offers tremendous resource potential, low development costs and lots of room for expansion. It’s one of the few projects that we see as competitive in this new lower-oil price environment, making it appealing to a lot of companies.”
LNG from Papua New Guinea can break even with prices of $6 to $8 per million Btu, compared with about $10 in the U.S., according to Macquarie Group. Asian LNG has averaged $7.52 this year, compared with $13.93 in 2014, amid a surge in supply. The offers for Santos and Oil Search have already made it a record year for proposed oil and gas deals in Australia, with at least 28 takeover proposals this year worth $24 billion including debt, according to data compiled by Bloomberg.
U.S. will need higher natural gas prices to encourage investment
(Platts; Oct. 23) - There is no evidence of a slowdown in the growth of natural gas supplies to world markets despite low prices, senior officials at global industry group the International Gas Union said Oct. 23, but they warned that U.S. prices would need to rise to $4 to $5 per million Btu to encourage investment in new projects and to guarantee a continued abundance of gas supply.
The fall in prices across the globe — and particularly in North America, where prices are currently pegged at less than $2.40 — has triggered concern over future upstream investments. "We're seeing investments being curtailed in some of the next tranche of early LNG developments," Mel Ydreos, the chairman of the IGU's coordination committee, told Platts in an interview. "If you look at Canada, it's questionable when [final investment decisions] will be reached for some of those projects," he said.
In addition, Ydreos said, the current low price in the U.S. is not incentive enough for upstream companies to invest in the development of new gas resources. "In the U.S., $3 gas is really not sustainable in the long run if you want to continue to have the abundance. A movement toward $4 to $5 is likely needed to continue to aggressively pursue resources," he said. "Whether [low prices] are a good thing for the ultimate long-term supply situation, that remains to be seen.”
Oregon county opposes eminent domain for gas line to LNG plant
(The World; Coos Bay, OR; Oct. 21) – Oregon’s Douglas County commissioners have asked the Federal Energy Regulatory Commission to deny Pacific Connector Gas Pipeline the right to use eminent domain for right-of-way acquisition. In a filing with FERC on Oct. 19, the commissioners cited safety and eminent domain as their main concerns with the proposed pipeline that would carry gas through Klamath, Jackson, Douglas and Coos counties to the proposed Jordan Cove LNG terminal in Coos Bay.
"The board does not believe the use of eminent domain for the acquisition of private property for the Pacific Connector Pipeline, a privately owned company, is appropriate," the commissioners wrote. "We request FERC to include a condition in any approval of the Pacific Connector Pipeline through Douglas County that eminent domain not be used and Pacific Connector be required to negotiate with property owners to reach agreement on route, safety and compensation."
The board also said it shared with FERC the concerns of its constituents regarding safety. The 230-mile pipeline would run from near the Oregon-California border to the coastal LNG site, bringing U.S. Rockies and Canadian gas to the plant for export. FERC has not issued approval for the pipeline and LNG plant, and the project developer has not committed to construction pending that approval and necessary commercial deals.
New York gas pipeline critics say FERC review was inadequate
(Albany Times Union; NY; Oct. 21) - Opponents of a gas pipeline expansion that includes New York’s Mohawk Valley on Oct. 21 blasted as inadequate a federal environmental review that found no significant potential health risks along the pipeline route but was silent on how the gas might be exported from the U.S. The Federal Energy Regulatory Commission on Oct. 20 found no significant environmental issues with plans by Dominion Transmission to expand its 200-mile pipeline in New York to handle gas from the shale fields of northern Pennsylvania.
Pipeline opponents called on the state of New York to require a more detailed environmental review as part of state water and air quality permits required for what Dominion calls the New Market pipeline project. Resolutions against the project have been adopted by Otsego, Canajoharie, Montgomery County, Fort Plain and Sharon Springs in upstate New York. Several opponents also wanted FERC to look at the environmental impacts of hydraulic fracturing for shale gas production in Pennsylvania.
Bob Perry, a trustee for the small community of Fort Plain, said there was "no evidence that the federal government gave our concerns … any serious consideration." In the 199-page document, federal regulators wrote that "natural gas extraction and related activities in the Marcellus Shale region are not within the scope" of the pipeline review, even though project opponents asked FERC to include the issue. Some of the gas moving through the line could go to proposed LNG export projects in Canada.
Oregon LNG developer puts investment decision at late 2016
(The World; Coos Bay, OR; Oct. 22) - In a presentation to the Community Enhancement Plan work group Oct. 20, Jordan Cove LNG senior project adviser Bob Braddock gave an update on the schedule for the coastal Oregon project. The Federal Energy Regulatory Commission issued Jordan Cove’s final environmental impact statement Sept. 30, and a FERC decision on federal authority to build and operate the plant at Coos Bay, Ore., is expected in late November or December, Braddock said.
"We expect somewhere in the range of 120 conditions that must all be successfully complied with before the start of construction,” he said. “Once we comply, then they will give us the notice to proceed." An investment decision won't come from Calgary-based Veresen, Jordan Cove's parent company, until fourth quarter 2016, Braddock said. "The reason for that is that we are in the process of negotiating commercial agreements that we anticipate will be fully executed by early March of this coming year.”
"The scale of the project essentially requires a fairly high level of national government support for the customers of these facilities, therefore there's a lot of red tape they need to do,” Braddock said. Jordan Cove will also need an engineering, procurement and construction contractor. Kiewit and Black and Veatch "carried us through the permitting process,” he said, but those contracts do not extend to construction. The developer says it would take 52 months after an investment decision to build the $7 billion project.
B.C. officials head to Singapore, Tokyo to pitch LNG plans
(Globe and Mail; Canada; Oct. 21) – B.C.’s Deputy Premier Rich Coleman will meet next week with the chief executive officer of Malaysia’s state-owned Petronas as the provincial government embarks on two Asian trade missions to spur liquefied natural gas exports. Coleman will speak at a conference in Singapore, where he will also discuss gas in a meeting with Petronas CEO Wan Zulkiflee Wan Ariffin. Petronas leads the Pacific NorthWest LNG venture, which is looking to build near Prince Rupert, B.C.
Industry experts consider Pacific NorthWest LNG a front-runner in the race to start work in B.C., although its proposal faces opposition from environmentalists and prominent members of the Lax Kw’alaams First Nation. Coleman, who oversees the province’s LNG file in his role as Natural Gas Development Minister, will fly to Japan after Singapore. He will meet with Japan Petroleum Exploration (a Pacific NorthWest LNG co-owner) and Mitsubishi (a member of the LNG Canada proposal led by Shell).
B.C. Premier Christy Clark and International Trade Minister Teresa Wat will head a separate trade mission to China from Oct. 30 to Nov. 7, stopping in four cities. They will address topics such as LNG, agriculture and clean technology. The trips come as anti-LNG activists step up protests. Last week, more than 180 people representing environmental groups and First Nations marched in downtown Vancouver.
Low diesel prices make trucking more competitive against rail
(Wall Street Journal; Oct. 22) - Fuel prices are low enough that truckers are again becoming more competitive with rail, executives at Union Pacific said Oct. 22. For years, railroads like Union Pacific have been developing their intermodal businesses of moving containers and trailers, allowing them to compete directly with truckers on their home turf. As fuel prices skyrocketed and trucking companies faced driver and capacity crunches, railroads became a logical, cheaper choice.
But diesel prices have fallen by about 30 percent over the past year to $2.53 per gallon, according to the U.S. Energy Information Administration, something that has made trucking prices more competitive again. “I think you look at what’s going on currently in the trucking environment, the lower fuel cost is allowing trucks to be more competitive vis-à-vis rail, just by virtue of that fact,” said Eric Butler, Union Pacific’s executive vice president of marketing and sales, on an earnings call with analysts Oct. 22.
Given a similarly priced choice, many shippers will choose trucking over rail because the shipment can go point-to-point and will likely arrive faster. In addition, after an intermodal container is railed close to its destination, it still typically needs to be trucked the so-called final mile to its destination. Still, Union Pacific said trucking companies still face the same issues going forward, including a driver shortage and issues with productivity due to sleep regulations and road congestion.
















Dave Harbour, publisher of Northern Gas Pipelines, is a former Chairman of the Regulatory Commission of Alaska and a Commissioner Emeritus of the National Association of Regulatory Utility Commissioners (NARUC).  He served as NARUC's official representative to the Interstate Oil & Gas Compact Commission (IOGCC).  The former Army officer is past Chairman of the Alaska Council on Economic Education, former Chairman of the Anchorage Chamber of Commerce, and past President of the American Bald Eagle Foundation and the Alaska Press Club.  He is Chairman Emeritus of the Alaska Oil & Gas Congress.

Harbour has served as a public/government/external affairs manager for three gas pipeline companies and an oil company and has owned several small companies in Alaska.  

He has addressed or chaired dozens of oil and gas conferences throughout the United States and Canada and hundreds of his editorials and articles have appeared in newspapers, magazines and electronic media throughout North America.

Harbour holds a Master of Science Degree in Journalism-Communications and is an accredited member of the Public Relations Society of America (APR).

Opinions or viewpoints expressed in this webpage or in our email alerts are solely those of the publisher and are not intended to reflect the opinion(s) of any affiliated company, person, employer or other organization that may, in fact, oppose the views stated herein.  -dh




19 October 2015 2:51am

Killing Capitalism?  

Have several oil and gas CEOs now joined the enviro-governmental-industrial cabal?

Commentary prepared on Friday, October 16, 2015


Dave Harbour

Today, we have what is to us a disturbing announcement by some of the globe's largest oil and gas companies.  

They have formed a new consortium.  Not to build a pipeline.  Not to develop an oil and gas reservoir.  Not to permit a new LNG facility.  No, these companies have formed a new consortium to support a conflicting interest, the "Oil and Gas Climate Initiative (OGCI)".  

We can imagine hundreds of environmental activists across the globe tweeting, "OMG!",  rubbing their hands, laughing, celebrating!  They will now have a new industry bureaucracy to lobby, insult, beg for money, coerce into supporting legislation.  A bright new target with a clearly visible bulls-eye.  More oil guys and gals dressed 'business casual' with wine and dine expense accounts.  Just think of the meetings, parties and interaction among the mostly European members of OGCI and the elite members of the United Nations, OPEC, Government ministers, etc.  The atmosphere must be both politically correct and intoxicating. 

We can also imagine the more cynical among enviro-activists saying between ironic smiles, "If these guys are so into challenging global climate change, why don't they just stop producing oil & gas, liquidate their companies and go home to enjoy cleaner air to breathe!" 

While well intended, the stalwart OGCI CEO's seem nevertheless to be kowtowing to the global warming crowd that worked so hard to delay and destroy Shell's vital Arctic exploration program off Alaska's Northern coast--and countless other industry projects.

We believe that this effort could be designed to endear the companies, if not the industry, to more favored treatment by politically sensitive world regulators and by the environmental gadflies that have continuously sought to delay or destroy their projects.  If so, our much respected oil and gas industry becomes just another member of the Crony Capitalist Cabal.

But it is a government relations/PR strategy designed to backfire.  The regulators and enviro-activists will never compromise.  They will always want more: more fund raising dollars, more restrictive bureaucracy and more governmental power.  It is foolish and naive to think otherwise.  

Think about it a minute: if industry believes one way and the socialist-enviro faction thinks another, which side ends up compromising...paying more money...accepting more regulations...bowing to more permitting conditions...supporting more politically correct policy positions?  Answer: not the other side.

We also believe that this oil industry climate change consortium effort opens the way for a higher level of direct and indirect corporate contributions (i.e. pay-offs to environmental groups and powerful elected officials).  Those familiar with American history, particularly in big city crime syndicate areas, have known this process as, "paying for protection." 

Shell -- a member of this new global warming consortium -- spent over $6 billion on Alaska OCS leases and massive expenses along with over a half decade of tireless work to overcome the regulatory and legal roadblocks put into place by a hostile federal government and its environmental allies.

Those roadblocks included bureaucratic timing delays, bogus air quality issues, wildlife issues, drilling season restrictions, enviro-extremist protests and a gauntlet of conditional permit requirements.

No company ever worked harder or spent more corporate treasure on stakeholder communications and project expense to drill one single well than has Shell.

Did that most monumental effort of all time placate federal regulators and enviro-activists?  

One should conclude that the massive, OGCI PR program violates the well-known definition of insanity: repeating the same actions while expecting a different result.

In recent months, we have seen more and more prestigious challenges to the so called, 'proven science of climate change/global warming', including:

Here is the OGCI report.

The oil company CEO "Declaration" shows how OGCI will coordinate with like minded partner organizations/initiatives, most of which are of European/United Nations descent, including:

  • The Sustainable Energy Initiative For All initiative, a powerful group including OPEC, Russia, European and UN Executives...and, former Democratic Senator Tim Wirth, a dedicated Climate Change advocate
  • The Global Methane Initiative which opposes production of Natural gas.
  • The anti-flaring initiative of the World Bank.  Here is its proposed role, which has connotations of a new bureaucracy funded by (oil companies and developed countries?) so that it can keep track of company flaring.
  • the Climate and Clean Air Coalition, is also a "partner" of our OGCI oil friends; it is focused on "national and regional" actions against short term pollutants, including methane, black carbon and HFCs.
  • The Low-carbon Technology Partnerships Initiative aims to: "break down the climate challenge into manageable business and policy actions; and, shape specific policy asks and partnerships which will support actions and mobilize finance to make a material difference to global emissions reductions
  • Caring for Climate, seems to be where the OGCI idea must have originated, for it was, "Launched by the UN Secretary-General Ban Ki-moon in 2007 and is the UN Global Compact, the UN Environment Programme and the secretariat of the UN Framework Convention on Climate Change‘s initiative aimed at advancing the role of business in addressing climate change.

If Ms. Figueres' goal is to destroy capitalism and "not save the world from environmental calamity", it looks like her UN colleagues have figured out how to do it.  Form a bewildering, interlocking array of "Initiatives" populated by UN managers and other "power organizers" all designed to focus control of "regions and nations" within the World Bank and the United Nations.

Last spring, global warming alarmists tried to scuttle Shell's scheduled use of the Seattle Port, a staging area for the Alaska project this past summer.  

At a Port hearing, most of the environmental witnesses cited Shell's alleged threat to global warming, whatever that is interpreted to mean by listeners.  

We documented at the time an admission from Christiana Figueres, executive secretary of U.N.'s Framework Convention on Climate Change, that the goal of environmental activists is not to save the world from ecological calamity but to destroy capitalism.  (Unfortunately, the OGCI consortium is working with Figueres {Photo here}, whose focus is not on the environment but on killing capitalism.

We have always defended the energy industry as the foundation of modern civilization, the essence of free enterprise and capitalism.

Apparently, the worldwide assault on freedom by enemies of capitalism have figured out that if they can make 'global warming' a rhetorical -- if not scientific -- reality, they will have more leverage to raise funds for their efforts and at the same time continue the steady, little-by-little killing of capitalism.

When I served as Gas Committee vice chairman of the National Association of Regulatory Utility Commissioners (NARUC) almost ten years ago, I saw first-hand how this climate change mania began to ramp up.

At the last minute before an Annual meeting, liberal commissioners from around the country sought to and were successful in ramming through a last minute 'climate change' policy statement that had not been fully vetted via NARUC'S usual and thorough resolutions procedure.

This action gave aid and comfort to certain Members of Congress and state lawmakers around the nation for saying, "See, NARUC thinks it is in the interest of consumers to support climate change legislation."

This was also a high water mark for armies of lobbyists seeking government aid for solar, wind, geothermal and all kinds of other alternative energy ideas--a big ramp up for crony capitalism.

Legislatures could say, "NARUC and a hundred scientists think action on climate change is in the interest of consumers, so we will pass a law minimizing use of fossil fuels used to produce electricity."  (Note: consistent with the President's campaign promise: see video.)

All over the country states undertook anti-fossil fuel measures.  These measures were mostly known as, "renewable portfolio standards".  This state status report illustrates how effective the anti-consumer liberal agenda has been to  1) cause utility rates to "necessarily skyrocket!", by 2) paying homage to the concept of global warming/climate change.  

Along the way, this insidious, anti - competitive RPS concept kills free enterprise jobs while creating, nourishing and sustaining crony capitalist companies loyal to their political benefactors.

On the federal front, the Administration and Congress tried to push through cap-and-trade legislation; failing that, the EPA is attempting to use its own regulatory power to achieve the same result.  Coal is producing over a third of the electric power in the country and it is very clean burning now...and, the cheapest way to produce electricity for consumers.  But the 'war on coal' is also, little by little, beginning to accomplish the Administration's goal of causing utility rates to, "...necessarily skyrocket...."

Here's the perverse effect on consumers.  Regulatory commissions everywhere are bound to produce utility (i.e. including electric) rates for consumers that are found to be "just and reasonable" after public notice, commission hearings, expert witnesses, establishment of a legal record of the proceedings, adjudication and the opportunity to appeal decisions.

But what if a Legislature passes a law that says, "defending against climate change is in the consumers' best interest: we are passing anti-coal, anti-fuel oil, anti-natural gas, etc. legislation and giving grants to solar, wind and other alternative energy companies?" 

Well then, the Regulatory Commission is forced into a corner.  The commission must allow utilities to recover the higher cost of securing alternative energy-produced electricity by passing on those costs to industrial, business and residential (family) consumers.  Adding insult to industry, utilities will also be allowed to charge customers for obtaining random, high priced fossil powered electricity to make sure customers have light and heat when the wind doesn't blow and the sun doesn't shine.  In short, pay double/triple for the same electricity.

Triple, yes.  For rate payers, as taxpayers, must also have their earned income redistributed by elected officials via grants and subsidies to their crony contributors/voters.

Here's the outcomecertain alternative energy companies have been enriched, elected officials supporting alternative energy companies receive contributions, TAXPAYERS PAY MORE TO PROVIDE THE ALTERNATIVE ENERGY GRANTS and CONSUMERS PAY MORE, MUCH MORE FOR ELECTRICITY UNLESS THEY FIND THEIR OWN WORKABLE SUBSIDY.  Never forget the President's statement about utility rates.

Speaking of the President, the current Administration, elected a year after NARUC's action, was heavily supported by environmental and alternative energy lobbies.  

The Administration has served those lobbies well.  It has violated Congressional jurisdiction by managing the Alaska National Wildlife Refuge like a 'Wilderness'.  It has blocked energy activity in half of the National Petroleum Reserve - Alaska.  It has pre-emptively and illegally stopped a mining project designed on Alaska state land leases before that project could even file for permits and enjoy a Constitutionally protected 'due process'.  It illegally (i.e. without due process) imposed a moratorium on oil and gas activity in the SHALLOW WATER of Alaska's Arctic after similar restrictions were legally imposed on Gulf of Mexico DEEP WATER drilling activity following the Deep Water Horizon tragedy in 2010.  It has illogically and irresponsibly blocked approval of the Keystone LX Pipeline even following successive State Department environmental clearances.

But more relevant to this discussion, the Administration has funneled huge, multi-hundred million dollar grants and subsidies to both producers of and consumers of alternative energy by tapping taxpayer pockets.

*     *     *

Now, imagine yourself flying 37,000 feet above and looking down upon this situation.

What you are seeing is a massive fundamental change in the free enterprise system that made America great.  Now, many crony capitalist companies compete for government and political favor, not against competitors in the market place -- or at least that is secondary.

President Eisenhower cautioned the country in his farewell address that, "In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex."

We can be sure that if he had known about the crony capitalist/environmental, governmental cabal described herein, he would have modified his speech to include a broader warning that includes the energy sector.

However, later in that speech, he did say something that should sober every public official and every citizen.

Just as we have cautioned in this webpage about intergenerational inequity, so did the good President say in 1961,"...you and I, and our government -- must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow."

Can't you picture Ike turning in his grave now, over five decades later? 

*     *     *

We know that the companies involved in today's announcement mean well.  They might be concerned that without "being on the correct side of this issue we could injure shareholder value".  Or, many of the leaders themselves could now be leaning toward 'green' or socialist philosophies.  For even if government controls their companies through partial ownership, bureaucratic regulation or fiat, they still have mighty fine jobs, still have viable companies.

Well, I cannot pretend to be in the minds of the decision makers whose rationale for this landmark decision must surely vary from board room to board room.

But I will offer this "free advice" to the companies of the OGCI Consortium, from a number of background perspectives:  

  • You should focus your management attention on aggressive, environmentally responsible oil and gas exploration and development.  As demonstrated in the OGCI report and company web pages, your individual efforts are admirable.  You should vigorously defend your accomplishments and not apologize for them as the organization of OGCI suggests.  
  • The group OGCI effort is likely to distract you from shareholder work without solving the problems you imagine will be solved.
  • You are likely to find those hired or promoted to OGCI work in that communal organization or in your individual company will be voices that more and more influence changes contrary to your traditional corporate culture and mission.
  • Rather, why aren't you focusing on supporting political leaders and parties committed to responsible resource development?
  • Avoid the temptation to have OGCI become a new conduit for money to environmental causes. Never make contributions to organizations that do not support your efforts; that is not to say you must always publicly oppose them, but active support is illogical and detracts from shareholder value.
  • You should redouble your financial support for business related NGOs that support your traditional mission and values.  Help them become more influential, credible and persuasive--with the general public and especially with younger generation issues, like STEM education.
  • Don't let liberal criticism of the Koch brothers intimidate you into supporting their critics.  Your policies should more closely emulate their principled convictions.
  • You will likely be pressured to compromise your positions beyond which OGCI has agreed to; remember that in the socialist or environmental arena, capitalist leaders are the ones compromising.  It's like a big buffet wherein OGCI brings the food while environmentalists and allied socialists bring the appetite, the energy, the arguments and the willingness to use any legal and some illegal means that they think are justified by the ends.  You cannot but lose position in the OGCI environment.

Finally, if you continue to pursue this OGCI course of action, you will:

  • be disappointed that all the executive time devoted to it will cause not less environmental opposition, but more hassle; and
  • going to the COP21 Paris meeting itself, will likely require a significant amount of your time dealing with mostly unproductive follow-up communication and meetings with advisors (COP21 goal, "a binding and universal agreement on climate, from all the nations of the world"); and
  • your external affairs folks will be flooded with new contribution requests from public officials and NGOs (i.e. "We're on the same side now; help me help you!"); and
  • find that many of your loyal employees will be wondering why precious corporate assets are moving toward initiatives that are opposed to the company's values and operations; and
  • know that much of the traditional, business support in communities you serve everywhere, will be disappointed.  Your community stakeholders will be put in the awkward position of either supporting your global climate change adventure or opposing that expediency.  Those who are intimidated into supporting you will be working contrary to their philosophies and sense of intellectual integrity; and
  • while you may not wish to compromise on a critical issue, the OGCI majority may want to not only give away part of their farm, but part of yours as well (i.e. the danger of working in "majority rule", communal groups sometimes outweighs the advantages, particularly where CEO egos and reputations are highly visible); and
  • lastly, many experts now concur that there is not 'settled science' on global warming although there is much evidence on changing temperature cycles over millennia.  And the modern fossil fuel industries in OGCI-developed countries at least, are very clean.  If human activity were proven to produce permanent warming owing to 'greenhouse gasses', it is not certain that Western Europe or America provide a major increment of that effect (i.e. especially compared with the oceans' overshadowing output). It is even less certain that your company's activities are negatively significant greenhouse gas producers.  It is completely certain, however, that if human activity is to "blame", we've mostly to look at China, India and other developing countries as sources, not at your company work.  I am not a scientist trying to present a clinical, peer-reviewed perspective...only the viewpoint of one community member who hates to see you move from a generally sympathetic but politically agnostic position on environmental protection, to a more controversial advocacy role that may be in such conflict with your traditional support base and ultimate shareholder interest -- and even the public interest.

Your position, if unaltered, will change the overall balance of opinion on this matter and lead to significant, hopefully unintended consequences, such as:

  • higher industry taxes to combat the perceived climate challenge to which your CEOs are now wedded;
  • more regulatory burdens with bureaucrats arguing that, "even OGCI knows that stronger steps must be taken";
  • more liberal majorities in political bodies around the world, courting your increased support; and
  • less likelihood that the oil and gas industry can survive (i.e. intact) the worldwide enviro-industrial-governmental cabal that is seeking to amass socialist power and kill capitalism using various tools, such as environmental activists and apologists

Let's face it.  Capitalism, free enterprise and our way of life depend upon the energy foundation, cemented firmly together with fossil fuel building blocks.  If that foundation is controlled by competing private sector companies, the public is -- certainly not perfectly -- but very well served in the best possible way.  

The capitalist system will change if our energy sector falls lock, stock and barrel into the arms of socialist architects (i.e. of whom there will be plenty in Paris at COP21).

To faithful readers:

If I have misinterpreted the case against OGCI or misrepresented the companies' intentions or perspective, I hope you will enlighten me.

The purpose of this energy archive is to provide accurate history, facts and reasoned commentary.  We have always supported the competitive energy industries with our commentary and best wishes.

If we are ever inaccurate we will make a immediate changes as required and even reconsider editorial positions that readers might demonstrate, persuasively, to be logically flawed.

Feel free to communicate here.


One can expect companies farther down the food chain to, one by one, move in the direction of their Industry employers and clients.  What then happens to citizens whose livelihoods depend on those companies; won't they tend to drift in that new direction?  And what about political systems depending on industry and individual voters; is the drift toward the environmental-industrial-governmental cabal their only alternative.  

Who will be left standing for freedom, and it's first son, capitalism, if not you and those responsive to you?

The answer is that without the energy industry remaining independent, competitive and avoiding the tempting siren call of environmental-socialist seduction, it will abandon its free enterprise allies in the smaller business sectors.  Capitalism's days become fewer as free enterprise is replaced by authoritarianism.

With creation of the OGCI consortium announced today, the well organized effort to kill capitalism may have taken an significant, unexpected and disappointing leap forward.




CEOs of 10 global oil and gas companies make collaborative declaration on climate change:      

Call for an effective climate change agreement at COP21.

  • Strengthen actions and investments to contribute to reducing the GHG intensity of the global energy mix.
  • Support the implementation of clear stable policy frameworks consistent with a 2°C future; these will help our companies to take informed decisions and make effective and sustainable contributions to addressing climate change.
  • Collaborate in a number of areas such as efficiency, natural gas, R&D and CCS
  • Report regularly and consistently on their progress.
  • OGCI report outlines member companies’ work to catalyze practical, meaningful and technology-enabled actions to address climate change.

Paris, France; October 16, 2015 – The chief executive officers of 10 of the world’s largest oil and gas companies - which together provide almost a fifth of all oil and gas production and supply nearly 10% of the world’s energy - today declared their collective support for an effective climate change agreement to be reached at next month’s 21st session of the United Nations (UN) Conference of Parties to the UN Framework on Climate Change (COP21).

In their milestone declaration, the CEOs of the 10 companies that currently make up the Oil and Gas Climate Initiative (OGCI) – BG Group, BP, Eni, Pemex, Reliance Industries, Repsol, Saudi Aramco, Shell, Statoil and Total – confirmed that they recognize the general ambition to limit global average temperature rise to 2 degrees centigrade and that the existing trend of the world’s net global greenhouse gas (GHG) emissions is not consistent with this ambition.

The OGCI member companies have taken significant actions to reduce their GHG footprint, with combined GHG emissions from their operations reducing by around 20% over the past 10 years.

In their declaration the 10 CEOs said:

“Our shared ambition is for a 2°C future. It is a challenge for the whole of society. We are committed to playing our part. Over the coming years we will collectively strengthen our actions and investments to contribute to reducing the GHG intensity of the global energy mix. Our companies will collaborate in a number of areas, with the aim of going beyond the sum of our individual efforts.”

(Helge Lund, BG Group; Bob Dudley, BP; Claudio Descalzi, Eni; Emilio Lozoya, Pemex; Mukesh Ambani, Reliance Industries; Josu Jon Imaz, Repsol; Ben van Beurden, Royal Dutch Shell; Amin Nasser, Saudi Aramco; Eldar Sætre, Statoil; and Patrick Pouyanné, Total.)

The OGCI also today launched its collaborative report - ‘More energy, lower emissions’ – highlighting practical actions taken by member companies to improve GHG emissions management and work towards improving climate change impacts in the longer term. These actions include significant investments in natural gas, carbon capture and storage, and renewable energy, as well as low-GHG research and development.

Together the declaration and report set out key areas where the OGCI companies will focus their collaboration, including:             

  • Efficiency: optimizing efficiency of their own operations; improving the end-use efficiency of their fuels and other products; and working with manufacturers and consumers to improve the efficiency of road vehicles.
  • Natural gas: contributing to increasing the share of gas in the global energy mix, ensuring it results in significantly lower lifecycle emissions than other fossil fuels for power generation; eliminating ‘routine’ flaring and reducing methane emissions from their operations.
  • Long-term solutions: investing in R&D and innovation to reduce GHG emissions; participating in partnerships to progress carbon capture and storage; contributing to increasing the share of renewables in the global energy mix.
  • Energy access: developing projects to provide people with access to energy in partnership with local and national authorities and other stakeholders.
  • Partnerships and multi-stakeholder initiatives: seeking opportunities to accelerate climate change solutions by working collectively or individually in industry and other initiatives.
  • The OGCI is a CEO-led, voluntary, oil and gas industry initiative that aims to catalyze practical action on climate change through best practice sharing and collaboration.
  • The OGCI was established following discussions held during the January 2014 World Economic Forum Annual Meeting and was officially launched at the September 2014 UN Climate Summit.

For the declaration, report and information:  www.oilandgasclimateinitiative.com

Photo caption: OGCI CEOs declare action on climate change: CEOs present at the event include: Helge Lund, BG Group; Bob Dudley, BP; Claudio Descalzi, Eni; Emilio Lozoya, Pemex; Josu Jon Imaz, Repsol; Amin Nasser, Saudi Aramco; Eldar Sætre, Statoil; and Patrick Pouyanné, Total. (OGCI member CEOs not pictured: Mukesh Ambani, Reliance Industries; Ben van Beurden, Royal Dutch Shell)


Media enquiries:

BG: Toby Bates - +44 118 929 2246 – toby.bates@bg-group.com

BP: David Nicholas - +44 7831 095541 - bppress@bp.com

Eni: Rosella Migliavacca  - + 39 345 67 75 323 - rosella.migliavacca@eni.com

Repsol: Kristian Rix - +34650496488 - rix.kristian@repsol.com  

Saudi Aramco: International Media Relations: international.media@aramco.com

Shell: International Media Relations - +44 20 7934 5550

Statoil: Knut Rostad - +47 90548990 – knuros@statoil.com

Total: Victoria Chanial - +33 1 4744 4699 – presse@total.com




President Obama’s Climate Change Message: “This Is All Real, This Is Happening Now” | Video | RealClearPolitics


If we do nothing, Alaskan temperatures are expected to rise between six and twelve degrees by the end of the century, changing all sorts of industries forever. This is all real. This is happening to our fellow Americans right now.”


“Alaska’s governor recently told me that four villages are in imminent danger and need to be relocated. Already rising sea levels are beginning to swallow an island community.


According to the University of Alaska, temperatures in Alaska have fallen 0.1 degrees since 1977. That extrapolates out to a rise of zero degrees by the end of the century, not “six to twelve degrees” as Obama claims.


Seasonal_Yearly_Temp_Change_77_F (2)

Temperature Changes in Alaska | Alaska Climate Research Center


According to NOAA, sea level is falling at 14 out of 17 Alaskan tide gauges. Obama’s claim that sea level rise is “beginning to swallow an island” is absurd.


North Pacific _RegionalTrends_Plot_3

Sea Level Trends – Mean Sea Level Trends for North Pacific Stations


But Obama’s claim is that we can “do something about it.”  Do something about what? Falling temperatures? Falling sea level? What does he propose to do about that?




Faithful readers know that I have traditionally used the 'editorial we' in these commentaries.  But today, I regard this topic so critical to the wellbeing of the country and the Industry that I offer this counsel personally.

But as an independent observer, I have no industry clients and operate this website as a public service at, primarily, my own expense in the last quarter of life.  It is a labor of love, but one to which I am devoted.  Part of my devotion to this nearly 15-year project flows from my knowledge of how many thousands of friends and acquaintances throughout the world read these pages.  I would never want any reader to think that the opinions expressed here were less than well considered and, at least, factual.

Dave Harbour, publisher of Northern Gas Pipelines, is a former Chairman of the Regulatory Commission of Alaska and a Commissioner Emeritus of the National Association of Regulatory Utility Commissioners (NARUC).  He served as NARUC's official representative to the Interstate Oil & Gas Compact Commission (IOGCC).  The former Army officer is past Chairman of the Alaska Council on Economic Education, former Chairman of the Anchorage Chamber of Commerce, and past President of the American Bald Eagle Foundation and the Alaska Press Club.  He is Chairman Emeritus of the Alaska Oil & Gas Congress.

Harbour has served as a public/government/external affairs manager for three gas pipeline companies and an oil company and has owned several small companies in Alaska.  

He has addressed or chaired dozens of oil and gas conferences throughout the United States and Canada and hundreds of his editorials and articles have appeared in newspapers, magazines and electronic media throughout North America.

Harbour holds a Master of Science Degree in Journalism-Communications and is an accredited member of the Public Relations Society of America (APR).

Opinions or viewpoints expressed in this webpage or in our email alerts are solely those of the publisher and are not intended to reflect the opinion(s) of any affiliated company, person, employer or other organization that may, in fact, oppose the views stated herein.  -dh




Former U.S. Senator Tim Wirth worked with Vice President Al Gore on global environmental and population issues, supporting the administration's views on global warming. A supporter of the proposed Kyoto Protocol, Wirth announced the U.S.'s commitment to legally binding limits on greenhouse gas emissions. From 1998 to 2013, he served as the president of the United Nations Foundation, and currently sits on the Foundation's board.  (Source)



The Global Methane Initiative works in concert with other international agreements, including the United Nations' Framework Convention on Climate Change, to reduce greenhouse gas (GHG) emissions. Unlike other GHGs, methane is the primary component of natural gas and can be converted to usable energy. The reduction of methane therefore serves as a cost-effective method to reduce GHGs and increase energy security, enhance economic growth, improve air quality and improve worker safety.  (This "partner group" is working against the OGCI consortium goal of, "Contributing to increasing the share of gas in the global energy mix."​



Governments and oil companies that endorse the Initiative will publicly report their flaring and progress towards the Initiative on an annual basis. They also agree to the World Bank aggregating and reporting the same.



Investors Business Daily Editoral, 2-10-15

Economic Systems: The alarmists keep telling us their concern about global warming is all about man's stewardship of the environment. But we know that's not true. A United Nations official has now confirmed this.

At a news conference last week in Brussels, Christiana Figueres, executive secretary of U.N.'s Framework Convention on Climate Change, admitted that the goal of environmental activists is not to save the world from ecological calamity but to destroy capitalism.

"This is the first time in the history of mankind that we are setting ourselves the task of intentionally, within a defined period of time, to change the economic development model that has been reigning for at least 150 years, since the Industrial Revolution," she said.

Referring to a new international treaty environmentalists hope will be adopted at the Paris climate change conference later this year, she added: "This is probably the most difficult task we have ever given ourselves, which is to intentionally transform the economic development model for the first time in human history."

The only economic model in the last 150 years that has ever worked at all is capitalism. The evidence is prima facie: From a feudal order that lasted a thousand years, produced zero growth and kept workdays long and life spans short, the countries that have embraced free-market capitalism have enjoyed a system in which output has increased 70-fold, work days have been halved and life spans doubled.

Figueres is perhaps the perfect person for the job of transforming "the economic development model" because she's really never seen it work. "If you look at Ms. Figueres' Wikipedia page," notes Cato economist Dan Mitchell: Making the world look at their right hand while they choke developed economies with their left.

Read More At Investor's Business Daily: http://news.investors.com/ibd-editorials/021015-738779-climate-change-scare-tool-to-destroy-capitalism.htm#ixzz3oymSvNqI 
Follow us: @IBDinvestors on Twitter | InvestorsBusinessDaily on Facebook


10-13-15 ConocoPhillips Feeds New Kuparuk Oil Into The Trans Alaska Pipeline System (TAPS)

13 October 2015 2:21am

Larry Persily, Federal Coordinator, Alaska gas pipeline, LNG, North American Gas Forum, Kenai Peninsula, Photo by Dave HarbourTony Clark, FERC, NARUC, North American Gas Forum, LNG, Alaska, Larry Persily, Photo by Dave HarbourFERC has full workload with LNG export projects"

by Larry Persily

​(NGP Photos: Larry Persily (L) and FERC Commissioner Tony Clark)

Be a part of the Alaska Support Industry Allance's Annual MEET ALASKA conference in January.  Here's how!

ConocoPhillips Adds New Oil to the Trans Alaska Pipeline

Yesterday, ConocoPhillips Alaska Inc. announced that Kuparuk Drill Site 2S (DS2S photo) began producing ConocoPhillips Alaska, Kuparuk, ConocoPhillips, Drill Site 25, Photo Courtesy ConocoPhillips, Edited by Northern Gas Pipelinesoil, under budget and ahead of schedule. The project was approved for funding in October 2014, and production was originally expected in December.

This is the first new drill site at Kuparuk in more than 12 years. DS2S is expected to add about 8,000 barrels of oil per day (BOD) gross at peak production.

Kuparuk Drill Site 25, new oil, ConocoPhillips, Photo Courtesy COP“Drill Site 2S is one of the key projects that we announced after passage of tax reform,” said Joe Marushack (NGP Photo), President, ConocoPhillips Alaska. “The $475 million project created about 250 jobs during construction, with numerous contractor companies and trades involved.

"We thank them for their effort to bring the project in ahead of schedule and for their commitment to working safely," Marushack said.  (See full release here.)


1.  BP's 3rd Quarter results will be published in two weeks, on Tuesday, 27 October.

2.  Today our Aussie O&G analyst friend comments today on Alaska's Kenai LNG plant and on liquidation underway within the O&G industry.

3.  Today our Mid-Atlantic O&G analyst friend discusses the declining borrowing capacity of E&P companies.

4.  Arctic Newswire/ADN by Laurel Andrews.  Royal Dutch Shell’s Noble Discoverer drillship left Dutch Harbor Monday afternoon....

5.  Canadian Oil Sands Boom Dries Up, by Ian Austen, New York Times/ADN.


Alaska Support Industry Alliance Trade Show: get your booth before they are gone!  MEET ALASKA will convene on Friday, January 8, 2016, at the Denai’na Civic and Convention Center. Here are the tradeshow application and the layout with numbered booths. The following booths are available today:  8, 10-13, 16-18, 21, 24-29, 34, 35, 37-39, 42-45, 47-49, 57, 58 and 60-63.  Enjoy!  -dh


FERC has full workload with LNG export projects

Larry Persily, Federal Coordinator, Alaska gas pipeline, LNG, North American Gas Forum, Kenai Peninsula, Photo by Dave HarbourBy Larry Persily lpersily@kpb.us (NGP Photo)
Oct. 13, 2015
(Larry Persily, assistant to the Kenai Peninsula Borough mayor, attended a North American gas forum in Washington, D.C., and prepared this report as part of the borough’s ongoing efforts to share information about LNG market developments. No borough funds were spent on travel.)
It’s a busy time for LNG project applications at the Federal Energy Regulatory Commission.
FERC has files open for almost two dozen proposed liquefied natural gas export terminals. That’s in addition to the five projects already approved by the agency. It was less than a decade ago that federal regulators had almost twice as many proposals for LNG import terminals — but that was before the U.S. shale gas boom ended any need to bring in gas from overseas suppliers.
The proposed export projects are scattered across the country, as far east as Maine, south to Georgia and Florida, all along the Gulf Coast and as far north as Alaska — seemingly anywhere there is a pipeline to move the surplus of U.S. shale gas to the coast for liquefaction and shipment to overseas markets. Or, in the case of Alaska, moving an almost 50-year-old gas discovery to market.
The agency is devoting more resources to its Office of Energy Projects to handle the workload, Joseph Kelliher (NGP Photo-R, with Dave Harbour), a former FERC chairman, said at the annual North American Gas Forum in Washington, D.C., Oct. 5-6. The higher the quality and the more complete the application — its environmental reports, data and details —the faster it will move, he said.
Less local controversy also helps, Kelliher added.
But multiple challenges from fossil fuel and LNG project opponents are slowing down the process, he said, as FERC spends more time on each environmental review.
Tony Clark, FERC, NARUC, North American Gas Forum, LNG, Alaska, Larry Persily, Photo by Dave HarbourFERC Commissioner Tony Clark NGP Photo) delivered the same message. The agency works harder and longer on each project to produce a thorough environmental review and decision that will stand up to the expected challenges in court. Several speakers noted it can take two years, or more, to receive a final environmental impact statement and decision on an LNG terminal from FERC.
Regardless of increased opposition to energy projects, the applicants — and the public — deserve timely decisions and certainty of law, Clark said. He cited the seven-year wait by TransCanada for a State Department decision on the proposed Keystone XL Alberta-to-U.S. oil sands pipeline as a “debacle.” The State Department, not FERC, decides on cross-border pipelines.
Most of the U.S. shale gas bonanza, however, is staying at home. This past spring, for the first time ever, natural gas produced more electricity in the United States than coal-fired power plants. “It was just an absolute sea change that no one could have predicted,” Clark said.
Moving all that gas from shale formations to domestic customers and to the coasts for export requires a lot of pipeline capacity, much of which used to move in different directions from traditional gas-producing areas. “We’re changing the piping of the United States,” said Octavio Simoes, president of Sempra LNG, which is building an export terminal at Hackberry, La.
For example, instead of moving Gulf Coast gas to the mid-Atlantic and Northeast, pipelines will need to transport Marcellus Shale gas from Pennsylvania and Ohio to the Gulf Coast for export as LNG.
The boom in shale gas production has made the United States a must-see for foreign buyers of LNG, looking for new supply sources to diversify their portfolio. And looking for lower prices.
Most U.S. gas is quoted as “Henry Hub,” the name given to the pricing point for natural gas futures contracts. The trading benchmark is a distribution hub where several major gas pipelines connect in Erath, La. Simoes told the story of a group of overseas buyers who wanted to tour the “Henry Hub,” mistakenly thinking there might be something to see. But Henry Hub is merely an aboveground metering station. “There were 40 of them and they took a lot of photos,” Simoes said.
Sempra’s project, called Cameron LNG, is adding liquefaction and export capability to an underutilized import terminal. Commercial operations are set to start in 2018, Simoes said, and already Sempra is thinking about expanding the plant’s capacity.
Until global LNG markets settle down and develop a new pricing structure, Sempra expects to see more short-term contracts rather than the traditional long-deal deals.
Too much new supply going after weak demand, coupled with the lowest prices in years, is making it tough on developers thinking about investing in new projects. Several speakers said that reluctance could mean tight global supplies in the 2020s.
“We think there is substantial risk of supply the end of the decade and into the next,” said Anatol Feygin, a senior vice president at Cheniere Energy, which is scheduled to open in Sabine Pass, La., the first LNG export terminal in the Lower 48 states by the end of the year.
There have been a lot of big changes in global LNG markets in just the past few years with new, lower pricing options, more flexible contract terms, and multiple new supply options from Papua New Guinea, Australia, the United States, as well as hopefuls from Canada to Israel to East African nations. “The world has not yet recalibrated to this new normal,” Feygin said.
Until that adjustment, low prices and fears of a long price recovery add uncertainty to investment decisions. “The economics on projects are quite stressed,” said Don Lemoine, vice president for gas monetization at global construction contractor Kiewit Energy Group.
Despite the turmoil, some fundamentals remain important. Buyers want known, reliable suppliers with a strong balance sheet, Simoes said. And suppliers still need long-term sales contracts to underpin the billions of dollars in financing needed to build an LNG project. Without that matchmaking, companies will not make final investment decisions and the market could be short of gas in the 2020s — and buyers will complain about high prices as they did in the past few years.
In addition to the Sempra and Cheniere projects, three other LNG export terminals are under construction in the United States — two in Texas and one on Chesapeake Bay in Maryland. And though U.S. LNG export promoters talk a lot about selling into the large Asian market, Europe and several emerging markets look good, too, Feygin and Simoes said.
“We’re not putting as many eggs … into the Asian basket as we did two or three years ago,” Feygin said of Chienere’s marketing efforts. Asian demand will depend in great part on how many nuclear power plants are restarted in Japan, and whether China’s economy and energy demand returns to strong growth. European demand will build over time, Feygin said, as will the Middle East which is increasingly looking at LNG to fuel its electrical generating plants.
Add to the list Pakistan, Thailand, the Philippines, South Africa, Argentina, Brazil and Chile, Simoes said. All are buying more LNG or starting to import the fuel. “I could go on and on with the list.”
How much European LNG demand grows will depend on the price of oil as a competing fuel, whether countries impose or raise carbon taxes, if local gas production continues to decline, and how much Russia fights — and lowers its prices — to protect its prime market.
“Russia has learned its lesson,” and is offering better contract terms, said Svetlana Ikonnikova, an energy economist at the University of Texas at Austin. Russia’s big exporter, Gazprom, makes most of its profits from gas sales to Europe and has taken note that many of its customers can take LNG as an option.
Some, like Lithuania, opted for a floating import terminal, rather than building a much more expensive and time-consuming onshore project. The floating storage and regasification unit (FSRU) takes delivery from an LNG carrier, stores it onboard until it is needed, then regasifies the fuel and pipes it to shore.
Egypt just tied up its second FSRU, and Jordan and Pakistan are also turning to floating terminals, along with several South American countries. At least nine older LNG carriers have been sold this year, likely targeted for eventual conversion to FSRU vessels. Global FSRU import capacity jumped five-fold between 2008 and 2015, and could reach 130 million metric tons of LNG per year by 2021, Feygin said.


Today’s Blog – Tuesday 13th October 2015

by AO&GOblogster

Please pass on this blog to others you think may like to read it


Data from two separate sources confirms what many industry observers currently consider to be the case: the oil patch is currently in liquidation mode.

The first data point is in respect to exploration expenditure.  Without exploration, reserves cannot be replaced, let alone expanded, but expenditure on this critical input has been slashed in the last couple of years.  Recent data from energy specialists, Tudor Pickering Holt (TPH) expects the exploration spend in 2016 (for the companies it covers) to be around half what is was in 2013.

And 2013 expenditure fell dramatically short of delivering discoveries that would cover consumption.

Furthermore, TPH's coverage universe is basically the larger companies in the global private sector - who are the drivers of exploration much more than the NOCs.

The second data point covers that other source of new reserves for the larger oil companies - acquiring their smaller brethren.  However this sector has also seen a dramatic decline in expenditure.  Dollars spent on acquisitions in the last quarter only totalled US$18B - 60% less than the quarterly norm in the preceding six years.

As Shell's CEO Ben Van Beurden noted last week, this lack of current investment creates the material risk of an oil shortfall and associated price spike in years to come.

Commodity prices

Crude oil prices fell ~5% over-night, with Brent closing at US$50.22 and WTI at US$47.38.

This fall feels like a not unexpected natural re-tracement and profit-taking following last week's large rise.  Goldman Sachs is currently a vocal bear and its influence on markets can be material.

The particular "numbers" that catalysed the bears on the day was the release of OPEC's monthly report, which showed that its production had increased by 100,000 bopd to 31.57mm bopd (somewhat larger than the official quota of 30mm bopd).  Saudi exports have been increasing as its own demand (summer related - for air conditioning) has relaxed in recent months.

In addition to pumping as hard as they can for revenue raising reasons, the Sunni world is also grabbing as much market share as it can prior to more Iranian oil coming back to market.

Over at Henry Hub, last night we saw a small rise to US$2.54.


The owners of the shiny new liquefaction plants coming on line in Australia have been (rightly) pointing out that, notwithstanding their current travails, these are very long life assets that will generate cash-flows for decades to come.

The longevity of liquefaction plants was recently emphasised by Alaska's Kenai plant seeking Federal authorisation to export more gas.  Kenai delivered its first cargo in 1969 and it looks like it will still be selling gas on its 50th anniversary.

South of Kenai, in British Columbia, mixed messages continue to emerge in connection with the Province's supposedly most advanced LNG project, the Petronas led Pacific Northwest project.  On the one hand, last week a Petronas spokesman re-assured stakeholders in Canada that the company was still committed to the project.  On the other hand, back home in Malaysia, local analysts have said the project is likely to be deferred to next decade.

On this issue, as in many others, one should always "follow the money".  Petronas, and its owner the Malaysian Government, arguably does not have the discretionary funds to invest in an expensive overseas project at this time.


Oklahoma continues to suffer from seismic events that have a potential causal link with oil patch activities.  On Saturday a 4.5 strength earth-quake was felt in the key oil hub of Cushing.   In response, the State Regulator (no enemy of the oil patch) ordered the suspension of local produced water re-injection activities.

Meanwhile over in Australia, the South Australian State Government is keen to be seen to "do something" about the closure of the State's only coal mine at Leigh Creek.  To that end it is assisting the promotion of the coal gasification potential of the remaining coal deposits by a small ASX listed company called Leith Creek Energy.

Given the history of coal gasification in Queensland, what could possibly go wrong?

Company news - Santos (STO)

STO yesterday announced an imminent 200 redundancies (on top of around 600 already made earlier this year).  Perhaps your Blogster should postpone his visit to STO's offices asking whether they want to sign a lucrative contract to receive this blog?  Still, the company has the funds to pay for the wages of both of its current CEOs.

As has become customary, The Australian Financial Review (AFR) today provided a brief update on the company's asset divestment process. Today the focus seemed to turn away from the Western Australian assets back to PNG.

Company news - Central Petroleum (CTP)

The AFR also today had a bullish piece on the proposal to link gas resources in the Northern Territory with Eastern Australian though the "NEGI" gas pipeline project.

It appears that the AFR was charmed (or bulldozed?) by CTP's well known CEO, Richard Cottee (more commonly known in the media as "the ebullient Richard Cottee") into giving somewhat more weight to the chances of the project going ahead than do the cynics like this blog (once I hear stories about investment grade sellers with reserves signing deals with investment grade buyers, I will instantly change my tune).

Company news - CNPC

Massive Chinese NOC CNPC (parent of PetroChina) is hardly an Australian company, but overnight news from it has implications in every country in which it invests.  This was the handing out of a 16 year jail sentence to its previous leader Jiang Jiemin for corruption. This followed the conviction earlier this year of another previous company chief, Zhou Yongkang.

Managers across the Chinese NOCs will be increasingly cautious about taking any business risks, even entirely legitimate ones, in case they could be tarred with a corrupt brush.

Quote of the day

Speaking of the ebullient Richard Cottee, a confidential source of this blog told the tale of Richard's analysis of his time at ill-fated Nexus Energy (more sensitive readers should turn away):

"Before I joined I knew I was going to be fed a sh*t sandwich.  What I didn't know was there would be no bread!"


From our Mid-Atlantic O&G analyst friend (COMMENT: Please read carefully and apply this trend to the importance of state and provincial governments supporting and not opposing LNG other O&G projects.  That is, if they want the jobs, reasonable (i.e. and not confiscatory) revenue from such projects in an era of low prices and heightened, worldwide competition.  -dh)

One of the largest open questions this fall affecting NA shale operators has been the extent to which banks will lower the borrowing capacity of E&Ps. There is a confluence of negative factors weighing on this evaluation that were not present in the past. Among them:

·        Lower natural gas prices than the prior three years

·        A whole year of depressed crude oil prices, and lower at this time of the year than last year

·        A major decrease in hedged future production

·        The likelihood that many E&Ps will reduce their previously booked reserves, especially PUDS

In effect, the banks are not going to have much to work with in giving the E&Ps any kind of break.

A recent report from RJR describes the process the banks will go through in the current round of redeterminations, and their estimate of the results. This should have a major impact on production going into 2016, and may directly affect the viability of a number of the producers. The next step: How do larger E&Ps approach the distressed? How do the Private Equity firms approach the distressef?

RJR speculates that the redeterminations may get even tougher next year, going into 2017. On the “bad activity begets bad activity” theme, it may be possible, but we are not on board with that yet.  There are too many variables and inputs.

In coming months, E&P borrowing could be down 20-25%.



10-11-15 Alaska Governor Continues Career-long "Brawl" With Alaska Oil Industry

11 October 2015 8:40am

Alaska Governor Continues Career-long "Brawl" With Alaska Oil Industry

ADN, Op-Ed by Paul Jenkins, Anchorage Daily Planet.  If reasoned leadership in this state sold for $1 billion a gram, we would have to scratch like chickens in a dusty barnyard to come up with a penny’s worth. If we could peddle ineptitude for a dime a ton, we would be rich.

Let’s review: Our Swiss cheese fiscal ship is belly-up and sinking like a stone. Alaska suffered a $3.5 billion deficit last year; it faces $3 billion in red ink next year. Oil pays the bills. Its prices are skidding and may crater. Credit-rating agencies are circling like vultures. There is talk of taxes, using Permanent Fund earnings, almost anything to raise money. There is little -- make that no -- good revenue news on the near horizon. In short, we are well and mightily hosed.

The only glimmer: Alaska is partner to ExxonMobil, ConocoPhillips, BP and TransCanada in building a proposed $65 billion Alaska LNG Project. The idea is to pump North Slope gas through an 800-mile pipe to Nikiski for liquefaction and shipment to Asian buyers. The project is in its earliest phases, and even if completed, will not pull the state’s fiscal fat out of the fire. In fact, according to Larry Persily, former federal Alaska gas line coordinator, it likely would generate only $1.5 billion in net revenues annually to the state general fund when operational -- not enough to fully fund state government, but a nifty start.


Gov. Bill Walker has apparently spent so much of his professional life as a lawyer brawling with the oil industry he sees conflict as de rigueur. Since election, he seemingly has spent as much time and energy trying to sink the LNG project as he has trying to make it fly.

Hey, he announces in a commentary published in Alaska Dispatch News, let’s expand the $10 billion Alaska Stand Alone Pipeline to compete with the LNG project -- just in case the companies do not do what we want. He wants to bleed off $100 million or so from the Constitutional Budget Reserve, buy out TransCanada, expanding Alaska’s ownership -- and risk -- to 25 percent of the entire project, not just 25 percent of the LNG plant. Now, he wants to expand the project’s pipeline diameter to 48 inches, adding $40 million to the price tag for studies and possible delays.

His kibitzing finally set off ExxonMobil Chairman Rex Tillerson, who fumed Alaska is its own worst enemy, changing horses in the middle of every stream it crosses. 

For his part, Walker says it is unthinkable producers may not market their gas and he demands “project certainty” from them, ignoring business reality: It must make economic sense no matter what he wants. (Regardless of the governor’s skepticism, an Alaska Oil and Gas Conservation Commission filing by BP and ExxonMobil last month seemed to indicate they are dead serious about the project.)

Despite his blustering, Walker appears to understand the companies are slaves to economics. At a recent news conference he said, “The market is going to determine if it’s going to happen. The financial markets are going to determine if it’s viable.”

Yet, there is his most recent insanity -- the call for a reserve tax on gas not earmarked for the project.


“It’s time Alaska acts like the sovereign that we are, and make sure we have some leverage and act as an owner state,” Walker told The Associated Press.


Look at it from the companies’ perspective: The state is a partner in the project -- until it wants something. Then, it becomes a sovereign taxing authority and steps back to flex its muscles. Afterward, it comes back to the table as a partner. How is a company with fiduciary responsibility to its shareholders supposed to deal with that? 


Alaska, indeed, is a sovereign state, but Walker is not king. He cannot muscle private companies -- any companies -- into something uneconomic. Threats, heated rhetoric, taxes, bullying, state-funded competition -- none of it gets us closer to a gas line. It may, in fact, get the state closer to losing partners....

Read the entire Op-Ed here.

Paul Jenkins is editor of the AnchorageDailyPlanet.com, a division of Porcaro Communications.

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