I am proud of my role in shaping Alaskan oil and gas development since the 1970s and in helping to produce "Pipeline Pioneers," a new film series available at arcticopportunity.org about the people who helped build one of the country's greatest and most critical engineering landmarks — the Trans-Alaska Pipeline System (TAPS). The series depicts TAPS through my eyes and those of four other Alaska pioneers — Dave Norton, Scott Harter, Kathleen Dalton and state representative Benjamin Nageak.
Since its construction in the 1970s, the 48-inch-diameter pipeline has transported oil from Prudhoe Bay on Alaska's North Slope, 800 miles south to the port of Valdez. There, it's loaded into tankers and shipped to refineries throughout the West Coast, a major energy-consuming region.
Starting in 1974, I worked as a project manager for Alyeska Pipeline Service Company, which built, maintains and operates the pipeline. At that time we all realized that we were part of an historic effort. We knew it was going to be one of a kind.
And it is. The technological marvel, which crosses three mountain ranges and 34 major rivers and streams, transformed Alaska's economy and strengthened the nation's energy infrastructure and security. The pipeline has moved more than 17 billion barrels of crude, generating more than $1.7 trillion in today's dollars.
TAPS now transports approximately 8 percent of the country's domestic crude oil production and continues to be the backbone of Alaska's economy.
"There was a responsibility or a feeling that it was important to get this done, and get it done fast, to secure America's energy future," says Dave Norton, a friend of mine who is also featured in the film series.
Scott Harter remembers the early 1970s, when Americans had to wait in long lines to get gas because members of the Organization of Petroleum Exporting Countries had enacted an oil embargo against the U.S.
"After living through waiting in lines to get gasoline, I can see that being held hostage for your energy is a real problem," Harter says. "If we can provide a relief to that, we should. And Alaska did."
Kathleen Dalton, whose late husband, James W. Dalton, has a state highway named after him because of his contributions to oil and gas discoveries, says that the pipeline "changed the complexion of Alaska" and natural security, reducing U.S. reliance on Middle Eastern oil.
Rep. Ben Nageak hails from Barrow, the largest city in the North Slope Borough, which is home to the oilfields around Prudhoe Bay and other potential energy development both on and offshore.
"They have airports in all the villages, they have power in all the villages, they have heat in all the villages, they have schools. Everything that was built in this municipality was built by revenues from oil and gas," he says in the film. "It's critical."
But that way of life and the production of critical energy for the entire nation are both under threat. At its peak, TAPS transported 2.2 million barrels of crude per day. At our current rate of consumption, TAPS has the ability to deliver about 11 percent of the nation's oil needs, a critical piece of a broad and diverse strategy that incorporates additional sources of energy like nuclear power, renewables, coal, etc.
But TAPS hasn't come close to that in decades.
Instead, it's seen a gradual decline since 1988, down to around a half million barrels per day today, and officials warn it could go offline if throughput dips below 300,000 barrels a day. The Arctic, onshore and off, has a lot more yet-to-be-tapped oil available. New exploration in the Chukchi Sea is a good start, but a new focus on permitting safe and responsible production in areas like the Arctic National Wildlife Refuge, the National Petroleum Reserve-Alaska and the Arctic Outer Continental Shelf would ensure continued operation of TAPS and the pride we all feel in having taken part in its historic construction.
With the right policies in place, the legacy of the Pipeline Pioneers will live on and America's energy consumers will be all the better for it.
Dave Haugen, a former deputy commissioner for Alaska, is senior project manager for the Alaska Stand Alone Pipeline. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
Calgary Herald, by Geoffrey Morgan.Suncor Energy Inc.’s Steve Williams blasted the “stupidity” of pipeline politics in the U.S. and Canada....
|Our Readers will be interested in Tom Brennan's (NGP Photo) Sunday, Anchorage Daily Planet review of the role Exxon, ARCO, Tom, Hank Rosenthal and others -- including your author -- played in Alaska Waterfowl enhancement policies of the 1970s and 80s. -dh|
Exxon CEO Rex Tillerson explains factors contributing to middle eastern oil producer decisions affecting world-wide supply, demand and pricing. This excerpt once again underlines the importance of competitive tax and royalty policies. In these volatile economic times, elected leaders in Alberta, Alaska and other North American energy producing areas should be focused more on "what we can do to attract investment," rather than, "what can we do to squeeze more blood out of the oil producing 'turnips' at the expense of future prosperity." -dh
|ADN. Alaska Governor pays gasline consultants more than $100k PER MONTH. (Comment: meanwhile, Alaska's annual budget deficit exceeds $3 billion. Spending programs are on the chopping block and higher taxes are on the horizon. Brilliant. -dh)|
ADN. Gov. Bill Walker (NGP Photo) is heading to Japan to speak at a conference on the global liquefied natural gas market. Walker spokeswoman Katie Marquette says the governor will be in Tokyo next week for the LNG Producer-Consumer Conference. While there, he plans to meet with prospective liquefied natural gas buyers about bringing Alaska's gas to the global market. (Meanwhile, the LNG world continues to be flooded with competitors -- leading to a growing trend of LNG spot market pricing. Depressed oil and gas prices are in the process of stranding big LNG projects, including Russia's Arctic energy development plans. To deepen our understanding of world price trends, we provide this interview summary featuring Exxon's CEO. -dh)
Today's comment from our anonymous, Aussie LNG expert reader:
The troubled Yamal LNG project in Arctic Russia was the subject of a recent Reuters report which provided an update on the financing for the project. As we noted last week, the appetite of Chinese financiers to come to the Yamal party is far less than the Russians would like and other options appear nebulous.
That leaves JV partner Total potentially having to provide even more support for Yamal than it has already given. This factor could have some relevance to current machinations in Australia and PNG over Woodside Petroleum's (WPL) proposal to acquire Oil Search (OSH).
Media reports have speculated that Total could be a potential rival bidder for OSH. However, even a Super-Major needs to manage its available cash, and with its commitments to Yamal possibly being unpredictable, Total may be reluctant to over-stretch itself in PNG.
Here is an excerpt of Exxon CEO Rex Tillerson's insightful comments during a recent interview by Petroleum Intelligence Weekly. This excerpt and commentary was provided by one of our gracious, anonymous readers, a Mid-Atlantic energy consultant:
...comments during an interview with with Rex Tillerson, CEO of Exxon, on several aspects of the current global crude oil market. In particular, we were interested in his observations of OPEC’s (non)actions to support crude oil pricing. He provides an excellent, long-term view of the dilemma facing the Saudis, particularly after they spent billions to provide reserve supply capacity after 2008. This is an excellent observation on how Saudi Arabia (essentially OPEC in one country) is really focused on how the oil market will morph from its current condition. ... There is obviously some collateral damage inflicted on some players (Russia, Venezuela, Iran, et al), but it does not represent the primary issue being dealt with by Saudis.
The relevant passage:
Regarding Opec, Tillerson does not believe that the organization, and Saudi Arabia in particular, has given up its oil market management role; rather, it has recognized the magnitude of the challenge created by current market conditions. He explains this point as follows:
"I don't think Opec has surrendered at all. I think they have recognized what they are dealing with. Their alternatives were to do what they have traditionally done when we have gone through these cycles, and that is manage their production to sustain a price band.They, too, rightly judged how out of balance this thing was and concluded that wasn't going to get them anywhere other than to really have to curtail their production. So, I think what they are doing is classic price discovery. It is largely the Saudis that have decided they need to undertake this. It is the future of the kingdom — how they are going to manage their resources, what level of capacity do they need to maintain, and [whether] they have to continue to invest to maintain capacity that they cannot produce. This is something that that a lot of folks overlook. And I remind folks that when prices went out of whack, got up to the $140 per barrel range, the Saudis, [Oil Minister] Ali Naimi in particular, recognized that was not good. The world looked at spare capacity and it was gone, evaporated. The Saudis had on everything they could produce, so, the king authorized them to develop two million barrels per day of capacity with the intent of shutting it in. I tell policymakers in Washington, who bash these guys all the time, you don't understand, these are the best friends you've got. No other nation in the world would invest billions and billions of dollars to develop 2 million b/d of oil producing capacity to shut it in. They had to demonstrate to the markets that spare capacity had been restored. Otherwise they can't play that role. Now they've invested all that money, they've got all that spare capacity, and now they are asking themselves: boy, did we make a big mistake? All this North American stuff came on and they have to understand what the pricing structure is today in order to make decisions about how much spare capacity, if any, they need to manage in the future in order to continue to play their role. So, I don't think they have changed their view about what role they need to play and what role they want to play. It is rather: how do they play it? And that is not obvious to any of us. It is going to be very informative to all of us to understand the price discovery process. Just where are the marginal barrels and how elastic are they? A lot of people thought it gets to $60 and everything would become obvious. I never held that view. I commented early on that I thought people would be pretty surprised at just how resilient this thing is, which is what I told the Opec meeting when I spoke to them in June. I said, you need to be ready for this to take a while. I think the fact that we have gone through several of these price convulsions this year, shouldn't be a surprise to anyone."
ADN. Alaska Gov. Bill Walker’s administration plans to propose reducing the state’s $600 million oil and gas tax credit program, cutting back on breaks to industry that are no longer needed, Revenue Commissioner Randy Hoffbeck said Tuesday.
In a meeting in Anchorage of a state Senate working group on tax credits, Hoffbeck told assembled lawmakers and industry representatives that state payments aimed at reviving a flagging natural gas industry in Cook Inlet had worked. There are no longer fears of a shortage in Anchorage and elsewhere in Southcentral Alaska, he said.
Important Tax Credit Hearing Occuring Today In Alaska: Details Here
Juneau Empire Op-Ed by Caroline Higgins (NGP Photo).
Last week, Alaskans welcomed President Obama to our state.
...opportunity to let the world know how we Alaskans feel about developing our plentiful natural resources....
Here is the perspective we Alaskans need to remember and share: Alaskans support resource development in huge numbers. Just last year, Consumer Energy Alliance surveyed Alaskans for their views on offshore oil and gas drilling in the Arctic. They found that 73 percent of Alaskans support development efforts in our Outer Continental Shelf. Those are approval ratings that most elected officials can only dream of. (Read more.)
Petroleum News. ConocoPhillips plans 7 New Well Locations In the National Petroleum Reserve-Alaska
(Australian Financial Review; Sept. 6) - Six LNG projects under construction in Australia at a cost of $200 billion will struggle to break even because of the oil-price slump, the International Energy Agency said, and there is little prospect of three in the planning stage going ahead. The agency said even if oil prices recover and average $60 a barrel for the next few years, Australia’s LNG industry will struggle to be profitable. "In a $60 oil environment the Australian projects will continue, but you are probably not breaking even," IEA senior gas expert Costanza Jacazio said in an interview from Paris.
Singapore-based energy forecaster Fereidun Fesharaki said the economics of the planned LNG projects in Australia are a "tragedy" due in part to over-optimistic expectations that Asian buyers would continue to pay historically high prices. "I am looking at oil to average a maximum of $75 a barrel over the next decade, and even then they just won't get a rate of return to justify the investment," said Fesharaki, a former energy adviser to Iran’s prime minister and with close links to Asian LNG buyers.
The IEA argues that cost overruns and delays combined with the big drop in the oil price and wilting demand from Asian buyers will severely erode the profitability of LNG plants nearing completion. "Many of these projects were sanctioned in an environment of $100-a-barrel oil, so clearly the impact on your earnings and profits has dramatically changed," Jacazio said. "You might just recover your operating costs, but the billions of dollars of sunk costs on the projects will take a lot, lot longer to recoup now."
For example, Origin’s $24.7 billion Australia Pacific LNG venture expects to start cargoes before the end of 2015. The company recently reported that its initial forecasts of earning about $1 billion a year from the project had fallen to $180 million a year at current prices. In addition, Fesharaki said, because spot prices are trading well below LNG contract prices, pressure is mounting for deals to be renegotiated lower, pointing to speculation that China's Sinopec wants to modify its contract terms on APLNG.
Japanese utilities look to more efficient gas turbines to cut fuel costs
(Bloomberg; Sept. 3) - Japan’s biggest power utilities are pushing ahead with plans to spend more on new turbines to improve the efficiency of their gas-fired power plants in an effort to lower fuel bills amid a protracted debate over the role of nuclear power. Chubu Electric Power signed an agreement with General Electric on Sept. 1 to upgrade eight turbines at a gas-fired plant in Joetsu City, about 130 miles north of Tokyo.
Tokyo Electric Power, the nation’s biggest utility, is replacing eight turbines at its 3,352-megawatt gas-fired facility in Yokohama. Kansai Electric Power in March completed installation of some of the most efficient turbines in the world at its Himeji No. 2 plant in southern Japan. The upgrades occur against the backdrop of rising electricity prices — power bills in Japan have increased about 15 percent since the Fukushima meltdowns forced heavier use of costly fossil fuels — and a squeeze on profits at the utilities.
Tokyo Electric estimates savings of as much as 8 billion yen ($67 million) a year once all the turbines at its Yokohama plant are replaced by January 2018. More than two-thirds of TEPCO’s current electricity generation is derived from LNG, compared with less than half before the Fukushima disaster. Japan’s utilities would cut LNG use by more than a third if their fleet of gas-fired plants were to reach the same efficiency as TEPCO’s Yokohama plant by 2030, according to utility and research institute data.
LNG glut closes opportunities until 2020s, Wood Mackenzie says
(Financial Post; Canada; Sept. 2) - The window to build liquefied natural gas projects in Canada and elsewhere has closed amid a worldwide supply glut, says global energy consultancy Wood Mackenzie. “There is a clear reluctance by companies to stand down, but the reality is that the window of opportunity closed over six months ago for everyone, not just for Canada,” Noel Tomnay, vice president global gas and LNG research for Wood Mackenzie said in an interview.
Qatar and Australia led the first two waves of LNG development with the U.S. spearheading the third wave, even as Canadian and East African proposals were stalled. “Canada’s biggest competitor is not the U.S., it is probably Mozambique,” Tomnay said, noting there could be a role of niche, “strategic resources” for investors in the next wave of development that will cater to demand after 2022. Proposed LNG projects are under pressure as prices are stuck in the $7 to $8 per million Btu range, compared to the $11 to $12 needed long-term to make project economics work.
LNG deliveries to the key markets of China, Japan and South Korea are also weakening at the same time that new LNG capacity is being built. “The outlook for longer-term incremental LNG demand growth in China is also being negatively affected. And with lower industrial output and power generation competition increasingly characterising other key Asian LNG markets, like South Korea, Asian buyers are not in a hurry to finalise new LNG contracts,” Tomnay said in the Wood Mackenzie report.
Rosneft CEO says LNG plant delayed to after 2020
(Reuters; Sept. 4) - Rosneft now plans to launch a plant to liquefy natural gas on Russia's Pacific Island of Sakhalin after 2020, Chief Executive Igor Sechin said. That’s at least two years behind the initial schedule. Rosneft, and partner ExxonMobil, have been planning to build an LNG plant to produce and export the fuel from their leases in Russia’s Far East. The project would be the second on Sakhalin Island, following a Gazprom-led LNG plant that opened in 2009.
Sources told Reuters in April that Rosneft may have to delay development of its LNG plant on Sakhalin for at least two years, as prices fell and financing all but dried up due to Western sanctions against Russia due to the country’s role in Ukraine. Rosneft signed an agreement with ExxonMobil in 2013 that aimed at starting production of 5 million metric tons of LNG per year in 2018 on Sakhalin.
Russia, China sign more energy deals, but analysts skeptical
(Bloomberg; Sept. 4) – Russian President Vladimir Putin’s long-heralded visit to Beijing this week yielded five framework energy deals that boost Russia’s hopes of strengthening ties with China as relations sour with the U.S. and Europe. Yet if history is any guide, most of the accords won’t bear fruit. “Heads of agreements are multiplying at a furious pace,” Sergei Tsyplakov, head of the Sberbank’s office in China, said by e-mail. “Practice shows that out of 10 agreements, we get one or at most two contracts.”
The agreements initialed this week by Rosneft, Gazprom and Novatek are largely non-binding. Putin is turning to China, the largest energy importer, as U.S. and European Union sanctions over the conflict in Ukraine limit Russia’s access to foreign financial markets and drilling technologies. While Russia’s need for credit and new markets increases as it enters its first recession since 2009, Beijing is stalling on further deals as it grapples with its own industrial overcapacity and a volatile stock market.
Gazprom, the world’s biggest gas exporter, said Sept. 3 that it has delayed to 2016 the deadline for signing a contract to supply China from West Siberia gas fields. That deal, valued at about $170 billion at current prices by UBS Group, would have made China Gazprom’s largest customer. Framework agreements have a tendency to languish. It’s been almost a year since Rosneft signed a deal with China National Petroleum Corp. for joint development of the largest greenfield oil development in post-Soviet Russia.
Chinese investment fund takes 9.9% stake in Yamal LNG
(Natural Gas Asia; Sept. 3) – China Silk Road Fund has bought a 9.9 percent equity stake in the Yamal LNG project. The framework agreement was concluded between Novatek and the investment fund Sept. 3 in Beijing, in the presence Russian President Vladimir Putin and People’s Republic of China President Xi Jinping, the Russian firm said in a statement. According to the agreement, the transaction is scheduled to close after certain conditions are satisfied, including the receipt of all necessary approvals.
Following completion of the deal, estimated at $1.4 billion, the shareholder structure for Yamal LNG will be Novatek (50.1 percent), Total (20 percent), China National Petroleum Corp. (20 percent) and Silk Road Fund (9.9 percent). The Yamal project, under construction in Russia’s Arctic, is scheduled to start production late 2017. Novatek and its partners have been looking for financing to complete the $27 billion project since U.S. sanctions against Russia had made it hard to attract investors.
The Chinese government established the Silk Road Fund last year to make infrastructure and natural resource investments, particularly in Asia.
Opposition grows against LNG plants in Port of Brownsville, Texas
(The Monitor; McAllen, Texas; Sept. 2) - More Lower Rio Grande Valley (Texas) local governments have gone on record opposing plans for development of liquefied natural gas facilities at the Port of Brownsville. The South Padre City Council adopted a resolution Sept. 2 opposing the LNG projects, as did the Laguna Vista Town Council on Sept. 1 and the Port Isabel City Commission Aug. 25. The Laguna Madre Water District, which provides water and sewer services to South Padre Island, passed a resolution Aug. 7opposing development of LNG facilities at the port.
The South Padre Island Business Owners Association voted Aug. 26 to oppose LNG development at the port, though the South Padre Island Chamber of Commerce, the Brownsville Chamber of Commerce and other business groups have endorsed the three proposed LNG export terminals. Supporters say it will create large numbers of jobs and boost economic development. Critics argue the plants would have a devastating impact on the environment and South Padre Island’s tourism and recreation economy.
All three proposed LNG plants are in the Federal Energy Regulatory Commission pre-filing stage, which is early in the environmental review process. Any final investment decisions are likely at least a couple years away, pending environmental approval, construction plans, costs and customers.
Debate over Oregon LNG moves to local land-use permit hearing
(The Daily Astorian; OR; Sept. 3) - A crowd of concerned citizens sporting red anti-LNG shirts and protest buttons packed the Warrenton Community Center Sept. 2 to oppose Oregon LNG’s plans to develop a natural gas pipeline and terminal on the Skipanon Peninsula at the entrance to the Columbia River. Before the public hearing on the company’s land-use permits could begin, city police officers asked that several dozen people leave the room, which is designed to hold 135 people.
The folks who stayed listened as attorneys, consultants and impassioned locals traded arguments for and against Oregon LNG’s proposed $6 billion project. The speakers made their case before Daniel Kearns, a Portland land-use attorney appointed by the city to decide whether the company’s applications meet city code. The project would include a gas liquefaction plant, LNG storage tanks, a loading terminal for oceangoing tankers and an 87-mile pipeline to an existing natural gas pipeline in Washington state.
Supporters cast the project as a boon to the city, an opportunity to provide well-paying jobs, stimulate the local economy and increase tax revenues by millions of dollars. Opponents cast it as a hazardous undertaking that could, among other problems, hold up traffic, drive down property values, disrupt fishing activities, pollute the environment and amplify the dangers posed by a Cascadia Subduction Zone earthquake and tsunami. The hearing officer’s decision is expected by early November.
B.C. appeal board cancels water license for fracking operations
(Vancouver Sun; Sept. 6) - The Fort Nelson First Nation has won a potentially precedent-setting decision from the B.C. Environmental Appeal Board that cancels the water licence of a natural gas fracking operation in northeast B.C. The appeal board — in a decision that took 20 months to deliver — concluded the science behind the licence was fundamentally flawed and the province did not consult the First Nation in good faith. Both the province and the company involved, Nexen, had argued using the water would have no significant adverse environmental effects and there was adequate consultation.
Calgary-based Nexen, owned by Chinese state-controlled CNOOC, also made a plea that cancelling the water licence would jeopardize hundreds of millions of dollars in investments. But in a Sept. 3 decision, outlined in a 120-page report, a three-member appeal board panel canceled the licence that allowed Nexen to extract water from a small lake about 55 miles northeast of Fort Nelson. The panel allowed Nexen to use the water it already has in storage.
Nexen had been issued a licence by the B.C. Oil and Gas Commission to take up to 660 million gallons a year. The appeal board said internal ministry correspondence showed the province intended to issue the water licence regardless of promised meetings with the Fort Nelson First Nation, and had no intention to substantially address concerns that might have been raised by the First Nation.
New drilling techniques could add even more to U.S. gas production
(Wall Street Journal; Sept. 1) - The U.S. may have far more natural gas than anyone imagined, all reachable at a profit even with today’s low prices. Experimental wells in Louisiana by explorers including Comstock Resources and Chesapeake Energy are proving highly lucrative thanks to modern drilling techniques and the sheer volume of gas that can be coaxed out of the ground. The trick is supersizing the horizontal drilling and fracking techniques that worked so well elsewhere and applying them in new areas.
The gains come from extending the lateral portions of wells by thousands of feet and pumping them full of enormous volumes of sand, chemicals and water to flush out more hydrocarbons. So far, the impressive results have been confined to a small area in a single Louisiana parish near the Texas border. But if the approach works across the giant Haynesville Shale, which spans 120 miles across both states, the era of low American natural gas prices could extend for decades into the future, experts say.
“There’s a large likelihood that the United States will be enjoying very low gas prices for a very long time, maybe 20 years,” said Mark Papa, who has monitored the Haynesville as a partner at Riverstone Holdings, one of the biggest energy-focused private-equity firms in the U.S. “This is a brilliant example of how the cost of supply continues to come down,” said Robert Clarke, a research director at consultancy Wood Mackenzie. Newer Haynesville wells are larger, producing more and are being drilled more quickly, he said.
Planning helped Norwegian town prepare for LNG plant
(Toronto Star; Sept. 4) - Age Tessem has lived in Hammerfest, Norway, most of his life. Which means he has seen enormous changes in the past 10 years from petroleum development. Home to about 10,000 and well above the Arctic Circle, Hammerfest sits on the shores of the Barents Sea. Its houses, schools and shops perch on rocky slopes surrounding a bay, looking toward nearby Melkoya Island, where Europe’s first liquefied natural gas export plant opened in 2007, changing the fortunes of this part of Norway.
The town is no longer a fishing hub; it’s a huge fuel station. Natural gas is transported by a seabed pipeline from the Snohvit offshore field, liquefied on Melkoya Island and exported by tankers worldwide. The island plant has reinvigorated Hammerfest, which only a few years ago seemed to be dying. For Tessem, 39, who is a teacher’s aide in a primary school, the plant has meant a better-equipped school and more teachers. And there are more daycare and kindergarten facilities. There’s also a brand new and architecturally stunning cultural center with dancing schools and music studios.
Brynar Isaksen agreed. He’s a contractor who has also lived in Hammerfest all his life. “There are better schools, water pipes, roads, more young people moving in,” he said. “Some of the people who had moved away are coming back.” How did this happen? “We made a deal with Statoil (the project operator) to fund our planning department for five years so that we could increase staff and the municipality could be better prepared for all the changes,” said Odd Edvardsen, Hammerfest’s head of planning.
Gazprom strikes deals to boost its presence in Europe
(Reuters; Sept. 4) - Russia's Gazprom has bolstered its industrial presence in the heart of Europe with two major gas deals that were announced Sept. 4 despite ongoing tensions with Moscow over the conflict in eastern Ukraine. The first of the deals, an asset swap with German chemicals group BASF that gives Russia greater access to gas trading and storage in Germany, was a surprise as the companies had abandoned it only nine months ago, citing a "difficult political environment.”
Pressed on what had changed since, BASF declined to respond directly. Its oil and gas production unit Wintershall, which will secure more stakes in Siberian gas fields under the swap, said only that it was convinced that Russian gas would help ensure energy security in Europe. The second deal would double the capacity of the Nord Stream pipeline to deliver Russian gas to Europe through the Baltic Sea, bypassing Ukraine.
The German government warned against interpreting the deals as a sign that relations with Russia were improving, saying there was no link with the Ukraine crisis or Western sanctions against Moscow. "These are company decisions that the German government has no influence over and does not try to influence," said Martin Schaefer, a spokesman at the foreign ministry. The European Union has talked about loosening Russia's grip on the EU's gas supply. It currently supplies one-third of the gas used by the bloc.
What’s at stake for Alaska in Shell’s Arctic drilling program?
Reader Op-Ed By Paul Fuhs (NGP Photo)
A lot has been said by many people about Shell’s Arctic drilling program but I have yet to see a real analysis of what it would mean for Alaska and our people.
Some have said : “Well, it is in Federal waters so we won’t get anything out of it.” I just don’t believe that is true. Here are some of the direct benefits we will receive if Shell is successful in their endeavors.
The current throughput of the Trans Alaska oil line is about 400,000 barrels a day and declining by about 5% a year. It has been estimated that below 200,000 barrels a day the pipeline will not be able to operate. A study by the Idaho National Energy Lab estimates that if this were to occur, we would strand at least 1 billion barrels of oil on the North Slope.
At even $50 per barrel, that is $50 billion of value left in the ground. At current tax rates that would mean at least $1 billion annually to the State’s treasury of which 25% would go to the Permanent Fund.
If Shell has throughput of 750,000 barrels a day as they have projected, it will drastically lower the cost per barrel for shipping oil through the pipeline. This would increase revenues to Alaska by increasing the wellhead value. The lower cost of shipping would also encourage the development of marginal fields on state and Native Corporation lands that would otherwise be uneconomic.
Keeping the pipeline active would provide ongoing substantial property tax revenues to local governments along the pipeline route that would otherwise be lost. Other communities would be helped as well. A little known provision of SB21, the tax reform bill, identifies corporate income tax as a source for municipal revenue sharing to provide services or reduce local taxes. While Shell wouldn’t pay Alaska production or severance taxes they will pay corporate income tax.
The production and severance taxes will be paid to the federal government and our congressional delegation is working hard to get revenue sharing of these funds to the State of Alaska and local governments, just as other states have done.
While there are risks to Arctic drilling, there are definite environmental benefits as well. For instance, Shell’s substantial support vessels are some of the only emergency response assets we have in the Arctic now, not just for Shell’s operation but also for vessels on the Northern Sea Route. Just a couple of years ago an international vessel called the Golden Sea lost power and was is imminent danger of running aground and causing an oil spill.
Shell was contacted and they voluntarily released their icebreaking support vessel Thor Viking to go rescue that ship and tow it to safe harbor in Unalaska where it could be repaired.
If Shell’s exploration program is successful and they proceed to full field development, the onshore port services that will be needed will be the financial impetus for finally building the Arctic ports we have been talking about. This would also improve the efficiency of shipping for Arctic communities and reduce their cost of living along with providing facilities for emergency response for vessel traffic in the Bering Strait.
Regional and Village corporations of the North Slope have joined Shell’s operation in a joint venture agreement. The profits from this association will circulate throughout Alaska’s economy as our Native Corporations keep the money within Alaska rather than sending it outside.
Then there are jobs for Alaskans. Jobs in onshore support services, jobs operating the Trans Alaska Pipeline, jobs in developing marginal wells on the North Slope, jobs in oil spill preparedness and jobs on the offshore rigs. Offshore gas finds could also extend the life of our hopefully soon to be built Alaska gasline.
Yes, there is risk to any endeavor such as this, but let’s remember that we have been drilling in ice covered waters in similar depths for over 40 years in Cook Inlet without ever having a major incident. And the regulations for drilling in the Arctic are even stricter.
I hope this helps Alaskans understand how much is at stake in Shell’s drilling program. If they are successful, other companies like Conoco Phillips and Statoil will come behind and will help build a thriving economy for coastal communities just as they have in the European North Sea offshore developments. And that will be good for all of us.
|Paul Fuhs is the former Mayor of Unalaska/Dutch Harbor, former Commissioner of Commerce and Economic Development, and is currently a port development consultant for ports that may be used during Shell’s exploration and development operations.|
Then, bookmark our April 17 commentary. -dh
Comment: Critical reading of today's events below demonstrates some good news in the form of COP's new drilling at its CD5 property on the Alaska North Slope (ANS). Then, we note from our Australian and Ohio analysts the increased difficulty faced by an ANS gas transportation project in a low energy price, high production environment.
ALASKA DECISION MAKERS: Does this not mean Alaska must become even more competitive to market its natural resources, not less? See this week's August 18 editorial, "Outrageous Decisions"; here are some reviews. -dh
Wilderness Society vs. Institute for Energy Research
But Brune apparently was trying to speak for Alaska's Native people. He also suggested that no new oil and gas areas should be developed because climate change (in his opinion) required all new energy to come from alternative energy sources (i.e. wind, solar, etc., we presume). This is more evidence that, indeed, to enviro-activists the 'end justifies the means,' and intellectual honesty has no role in their strident advocacy. -dh
Today ConocoPhillips (NYSE:COP) announced that development drilling has begun at its CD5 drill site on the North Slope. CD5 is the first oil development within the boundaries of the National Petroleum Reserve-Alaska (NPR-A), and first oil is expected in the fourth quarter of 2015. Click here to view the full news release.
THE ENERGY ANALYSTS SPEAK...AND, YOU READ IT HERE FIRST!
Today we bring you two of our favorite private analysts, whose names shall not be revealed.
One writes from the Mid Atlantic interior state area while the other writes us from far across the Pacific.
Today's Aussie O & G Observer writes:
- ...the Alaska LNG Project is....(Read more)
- The oil market has been smashed again overnight.... (Read more)
Our Ohio Observer says:
- The highwater mark for rigs operating in the Bakken during the past two years was October 2014 (see below) at 194. Since that time, the number of rigs has fallen 60%. Yet production is almost at record monthly levels, and (Read more)
AJOC by Elwood Brehmer.
All Alaska Gasline Development Corp. contracts would be open to the public under a draft regulation proposed Aug. 13 at its board of directors meeting.
A contract submitted for board approval would be posted on the Alaska Gasline Development Corp., or AGDC, website at least 10 days prior to the meeting at which it is to be discussed, the draft regulations state.
Overall, the five pages of proposals limit what types of confidentiality agreements the corporation and its directors can enter into.
“If the regulations are adopted in this form it is simply going to be fairly open going forward,” AGDC attorney Ken Vassar said. “We’re not going to enter into any contracts that by their terms are themselves confidential. That’s just not an agreement that would be available to u
Today's Consumer Energy Alliance links to issues important to NGP readers:
Argus Media: States urge dismissal of Oregon LCFS suit
The federal court lawsuit brought by the American Fuel and Petrochemical Manufacturers Association (AFPM), American Trucking Association and Consumer Energy Alliance echoes arguments they made against the California LCFS. The judge in that case said that the AFPM lawsuit could not go any further because of a 2013 decision by the US Ninth Circuit Court of Appeals that said the California program did not explicitly discriminate against out-of-state products in violation of the US Constitution.
Alaska Dispatch News: With Obama's visit less than two weeks away, details trickle out
Public officials and residents alike, from Anchorage to the 400-person village of Kivalina on the northwest coast, are watching and waiting for more details about President Barack Obama’s upcoming visit to Alaska.
Fox News: Clinton hit for breaking with Obama on Arctic drilling, staying mum on Keystone
Hillary Clinton is taking heat from Republicans for breaking with the Obama administration on Arctic drilling while continuing to hedge on her position on the Keystone XL Pipeline.
National Post: Kelly McParland: Obama’s Arctic drilling rationale doesn’t even convince supporters
Barack Obama is a curious individual. The U.S. president has delayed making a ruling on Canada’s Keystone XL oil pipeline for seven years, seeking to burnish his environmental credentials and please supporters in the green movement. The refusal upset Ottawa no end, but the White House deemed Canada’s vexation less crucial than making a point about the importance of battling climate change.
Town Hall: Poll: Americans Think Obama’s Climate Change Plan Will Increase Energy Costs – They’re Right
The Obama administration’s plan to cut carbon dioxide emissions by nearly 30 percent from 2005 levels by 2030 has a majority of Americans feeling their wallets since electrical costs are projected to go up. The increase specifically places fixed-income seniors in the cross hairs. Moreover, the projected job losses are will hit rural America the worst.
Real Clear Energy: One Loser in Obama's Climate Plan? Existing Nuclear
Right now, the biggest source of clean energy in the United States is nuclear power. The country's 99 commercial reactors provide 20 percent of our electricity, all without emitting carbon dioxide. Compare that with wind at 4.9 percent or solar at 0.6 percent.
Heartland Institute: House Cuts EPA Budget, Would Block Clean Power Plan
The House Appropriations committee cut funding for the Environmental Protection Agency (EPA) by 9 percent, or $718 million, and blocked key Obama administration climate rules when they approved a $30.17 billion Interior and Environment spending bill.
Fuel Fix: Commentary: Fossil Fuels are the Solution, Not the Problem
The George C. Marshall Institute has recently released a study on fossil fuels and the economic well-being. It describes why energy is an essential input to economic activity. Because fossil fuels are such a large part of the world’s energy supply, they play a dominant role in enabling people everywhere to enjoy a higher standard of living and greater personal freedom.
Forbes: Pennsylvania and Truth in the Incidence of a State Severance Tax
Pennsylvania policymakers are nearing a two-month budget stalemate between Governor Tom Wolf and state GOP leadership, at least part of which can be attributed to their divergent views on the implications of a proposed severance tax on the production of unconventional natural gas.
Economic Times: Oil prices hit 6-1/2-year low as US crude supplies rise
Oil prices in New York sagged to a new six and a half year low Wednesday following data showing an increase in US petroleum stocks. US benchmark West Texas Intermediate for delivery in September dropped $1.82 to $40.80 a barrel on the New York Mercantile Exchange. The contract fell as low as $40.46 a barrel earlier in the session.
New York Times: Oil Companies Sit on Hands at Auction for Leases
With oil prices collapsing and companies in retrenchment, a federal auction in the Gulf of Mexico on Wednesday attracted the lowest interest from producers since 1986. It was the clearest sign yet that the fortunes of oil companies are skidding so fast that they now need to cut back on plans for production well into the future.
San Antonio Express-News: Low crude prices affect offshore drilling auction
Oil and gas companies are set to pay $22.7 million for drilling rights in the Gulf of Mexico following a lackluster government auction Wednesday that reflected low crude prices. With just five companies participating and only 33 leases sold, the turnout marked the smallest western Gulf of Mexico lease sale since area-wide auctions began in 1983.
Fuel Fix: Oil and gas cos. among most profitable per employee, analysis finds
Oil and gas companies were among the best at squeezing the most revenue from a small number of employees last year, according to data collected by a business research website. Researchers from FindTheCompany calculated profits per employee among companies on the S&P 500 in 2014. Among the top 25 companies ranked according to that metric, 15 were oil and gas exploration and production companies.
UPI: Wood Mackenzie: Mexico oil swaps only slight U.S. move
Approval for oil swaps with Mexico opens the spigot for U.S. crude oil, but might not be the export indication supporters are hoping for, an industry analyst said. The U.S. Commerce Department last week granted a request from Mexican energy company Petroleos Mexicanos, known also as Pemex, to swap as much as 100,000 barrels of U.S. crude oil per day for Mexican refining. The deal forbids the re-export to other nations.
Houston Chronicle: Senators ask SEC to review oil companies' disclosure on offshore risk
A dozen senators are asking the Securities and Exchange Commission to probe whether oil and gas companies are fully disclosing the risks associated with their offshore operations.
Alaska Journal of Commerce: Paper: Cooperate rather than lead on AK LNG
A leading U.S. economist says a large natural gas pipeline project is vital to the state’s economic future and that the state should cooperate with experienced large companies in developing the project rather than attempting a plan for the state to lead the project.
Orange County Register: Obama's Clean Power Plan is bad news for California
The White House recently released its Clean Power Plan, which aims to reduce the nation’s carbon dioxide emissions by 32 percent by 2030. Almost immediately, California Gov. Jerry Brown praised the plan, claimed it should be the model for international agreements and touted California’s own statewide plans. But California’s carbon control program should be a warning to the rest of the country, not an endorsement of the president’s plan.
The Argus Leader: My Voice: Getting Washington working again for Americans
When Republicans campaigned for the Senate majority in 2014, we made a simple, yet important pledge to the American people: If you elect Republicans to the majority, we will get the Senate, which has been dysfunctional for years, working again. That was not a half-hearted campaign slogan; it was a commitment on which we intended to deliver.
The City Wire: Arkansas severance tax revenue set fiscal-year record, pace falls in new year
Arkansas severance tax collections tumbled nearly 59% in the first month of the state’s fiscal year 2016 as Fayetteville Shale drillers were unable to sustain production levels due to continued weak natural gas prices, spending cuts and fewer operating rigs.
Lincoln Journal Star: Local View: Five seasons Nebraska should reject the EPA’s mandate
The EPA’s “Clean Power Plan” would drastically increase energy costs for all Nebraskans without achieving its stated goal of combating climate change.
Milwaukee Journal Sentinel: Enbridge claim hard to swallow
None of us should be surprised when fossil fuel company executives tell a whopper or two in order to promote their interests, protect their massive government subsidies or avoid regulation of the deadly carbon pollution they freely loose upon Earth's increasingly damaged atmosphere.
Chicago Tribune: Colorado already put methane caps on drillers, and it worked
For an idea of how the U.S. government's proposed methane rules will affect drillers, look no further than Colorado. The state became a test case for similar controls last year when a coalition of energy companies and environmental groups agreed on measures to cut the pollution. In a bid to address smog, regulators there adopted the nation's first requirements for oil and natural gas companies to find and fix methane leaks.
Wheeling Intelligencer: W. Va Leaders Bash Clean Power Plan
For better or for worse, depending on one's perspective, President Barack Obama's Clean Power Plan will significantly change America by the year 2030 - if its goal of cutting 32 percent of CO2 emissions from electricity plants becomes reality.
Andover Townsman: Natural gas pipeline could add $950K to tax coffers
Andover could rake in nearly $1 million in new property tax revenue if a plan by energy giant Kinder Morgan to build a high-pressure natural gas line through town ever comes to fruition. Kinder Morgan officials said last week that Andover would get $950,000 in tax revenue while Methuen would earn $700,000 for being hosts to a portion of the gas pipeline. Dracut, meanwhile, could earn more than $2 million for hosting some of the key infrastructure for the pipeline system.
Observer #2 (Ohio). The highwater mark for rigs operating in the Bakken during the past two years was October 2014 (see below) at 194. Since that time, the number of rigs has fallen 60%. Yet production is almost at record monthly levels, and has increased in the past two months. Part of this has to do with the number of uncompleted wells dropping by 77, leaving 848 still in the inventory of uncompleted wells. This volume can apparently be maintained for some time. According to the monthly report from the North Dakota DMR,
At the end of June there were an estimated 848 wells waiting on completion services, 60 less than at the end of May.
The current rig count plus NC well inventory is sufficient to maintain 1.2 million barrels of oil per day for 24 months
Bottom Line: If this carries over to other oil shales, it is going to be difficult to see any drop in domestic crude oil production in coming months.
Observer #1 (Australia) The oil market has been smashed again overnight (more below). Current sentiments appear to be very bearish, with every piece of bad news being the signal for a sell-off.
A quote from Tudor Pickering Holt's daily note to clients yesterday is set out below. To my mind this provides a clue as to the source of much of this bear-ishness:
"The snapback in stocks / commodities coming out of the 2008/2009 financial crisis spoiled us…it’s usually not that easy exiting a down cycle."
This to me says that the market is going through the "five phases" of grief after last year's oil price crash - and we are now only at the second phase: anger that the re-bound has not yet come (and is not in sight). If this cod-psychology is correct, then we have still three phases to go....
Brent closed down more than 3% at US$47.00, whilst WTI was even harder hit, closing down 4.3% at US$40.55. The twelve month forward price is now worse than it was during the 2008/09 GFC induced oil price fall.
The numbers du jour which induced this fall was data from the EIA's weekly report, which indicated that US crude inventories increased by 2.6 mmbbls (although net product inventories - gasoline and distillate - fell by 2.1 mmbbls). The market consensus figure earlier in the week had not anticipated the extent of the build. The EIA also reported that US daily imports had increased by ~0.5 mmbopd - implying that the US is being used as the global storage site of last resort.
The Henry Hub natural gas price closed down 1c at US$2.71.
Regular followers will recall that this blog considers that the Alaska LNG project is the tortoise of the LNG world - well placed to beat some of the flashier hares. However, Alaskan politics is currently bouncing a few rocks off the shell of this plodder. Readers around the world will recall that Alaskan Governors can often be colourful characters - looking no further than one of the favoured running mates of The Donald, one Ms Sarah Palin.
Not wanting to be beaten by Ms Palin's appetite for socialist oil industry taxes, the latest Governor (Bill Walker) has introduced a concept worthy of Hugo Chavez: taxing gas resources in the ground (a "reserves tax") at the same time as he has signaled he would like the State to takeover 51% of the BP/Exxon/Conoco AKLNG project.
As this is the USA, I expect reason to prevail eventually - but this shows that LNG projects everywhere are subject to politicians mistaking fragile eggs for golden gooses.
Governments and fracking
Victoria's Auditor General released a report yesterday concluding that the State was not as well placed as it should be to manage issues associated with on-shore oil & gas exploration. This has led the Greens to issue a clarion call for the ban of fracking for the period of "forever" (rather than the usual mealy-mouthed five year moratorium). The Farmer's Federation wants more "science". Clearly more than a million safely fracked wells don't provide a statistically valid sample size......
Company news - Armour Energy Ltd (AJQ)
Micro-cap AJQ has announced today that it has signed a non-binding deal with large US private equity firm, American Energy Partners (AEP) under which the latter may farm-into AJQ's Northern Territory acreage.
AEP was founded a few years ago by the colourful ex-CEO of Chesapeake Energy (the second largest US gas producer), Aubrey McClendon. This is the first deal that it (or Chesapeake, to my knowledge) has done outside the USA - the well costs, etc, will not be familiar!
If the deal is turned into a binding one, it will see AJQ be 25% free-carried through a US$100M program, and receive US$11M cash up-front as well.
AEP's founding investor was another US private equity firm, Energy & Minerals Group (founded by ex-Exxon MD Lee Raymond's son) - who themselves recently entered the Northern Territory through a farm-in with private Australian company, Pangaea Resources.
Company news - A J Lucas Ltd (AJL)
AJL has a 40% stake in the UK's best known shale gas exploration company, Cuadrilla Resources, who were recently awarded further exploration licences in on-shore England.
Company news - Beach Energy Ltd (BPT)
BPT today announced that it had appointed an acting-CEO - Neil Gibbons - as MD Rob Cole was absent for family reasons.
Company news - Santos Ltd (STO)
Tomorrow STO will announce its half-yearly results. Its full year results in February included a A$1.6B write-down - but using oil price assumptions that are significantly higher than the current forward strip - or indeed than the bearish sentiments on price that came from Woodside's results briefing earlier this week.
STO will have to walk a narrow line between not being seen as being over-optimistic on oil prices versus not wanting to precipitate the equity raising which its leadership has nailed its credibility to not doing.
Quote of the day
Aubrey McClendon's robust views on the fracking debate:
"We frack all the time. What’s the big deal? Where is the mushroom cloud? Where are the dogs with one leg?”
Gas/LNG links courtesy of Larry Persily, Kenai Peninsula Borough:
Oil and gas news briefs for Aug. 20, 2015
Report says U.S. LNG must be price competitive to succeed
RBN Energy; Aug. 17) - The U.S. over the next three to five years will become a top exporter of LNG, and may emerge as the world’s leading exporter by the mid-2020s. The 12 liquefaction trains now under construction at five sites in the Lower 48 states together will have the capacity to export up to 54 million metric tons per annum, about 7 billion cubic feet of gas a day. How much more the U.S. LNG export potential can grow is covered in a report released this week by energy analytics firm RBN Energy.
The report, “LNG is a Battlefield — The Prospects for U.S. Success in Overseas Markets,” said that despite gas becoming the “hydrocarbon of choice for power generation, heating and many other uses across much of the global energy market … LNG must not be cost-prohibitive.” And until LNG demand grows as expected over the long term, the short-term view looks week. “A lull in demand growth — coupled with new liquefaction capacity — has bloated LNG supplies and slashed prices in the past year.”
Even with low oil prices, which have dropped the oil-linked price charged for LNG under traditional long-term supply contracts, “the U.S. should remain a cost-competitive supplier to international markets,” the report said. A lot will come down to price, it said. “Returns on investment in U.S. LNG export infrastructure as well as the extent of future expansion depend on price competitiveness in international markets.”
Buyers’ market pushes Australia LNG developer to focus on costs
(Reuters; Aug. 19) – Australia’s largest independent oil and gas producer Woodside Petroleum said it has stepped up marketing for its proposed Browse floating liquefied natural gas project, but conceded it is facing a buyers' market against a backdrop of weak oil prices. “The project will need to deliver an acceptable return at the current expectations of oil pricing, meaning it needs to break even at the sorts of oil prices we’re seeing in the marketplace today,” CEO Peter Coleman said.
Despite some analysts expecting a delay, the company is still targeting a final investment decision on Browse in the second half of 2016, having moved into the front-end engineering and design phase this year. Woodside has been able to cut cost estimates by 20 to 30 percent for the subsea and pipeline pieces of the long-delayed project off Western Australia, which analysts previously estimated at $45 billion when it was planned with a land-based liquefaction plant.
The partners are now focused on driving down costs so Browse can be profitable even if oil fails to rebound, and will be marketing the gas aggressively this year. One of those partners, Shell, whose floating LNG technology is the template for Browse, recently said it was far from certain the partners would approve the project.
Gazprom faces serious challenges, including all-time low production
(Agence France Presse; Aug. 16) - Facing a cold shoulder from Europe and increased competition at home, Gazprom has struggled to assert dominance on the global energy market, prompting speculation the natural gas giant could have no choice but to splinter. With the Russian economy slipping into recession on the back of lower oil prices and Western sanctions over Ukraine, the economy ministry has predicted Gazprom would produce 14.6 trillion cubic feet of gas this year, an all-time low for the company.
Gazprom's market capitalization has crashed in recent years. Before the 2008 global financial crisis, the company was worth over $300 billion. Its value now hangs around $50 billion, trailing far behind other major energy companies. "Gazprom is confronted with the greatest challenge in its history," said Chris Weafer, a partner at the Macro Advisory consultancy firm. "What remains to be seen is whether Gazprom becomes an appendage of the foreign ministry or evolves into a global energy company."
Gazprom is grappling with a series of issues, including its recent loss of the Ukrainian market, Europe's energy diversification and increased competition at home. And without U.S. technology blocked by sanctions, experts fear that Russia will not be able to exploit its Far East resources that had been destined for LNG exports. "This is bad news for Russia because the production of LNG is a strategic objective in the region," said Valery Nesterov, an analyst at Sberbank Investment. Some analysts have said Gazprom could benefit from dividing into smaller entities that would be more efficient and transparent.
Gas supply a question for Canada’s East Coast LNG export projects
(Globe and Mail; Canada; Aug. 17) - Two proposed liquefied natural gas projects on the Nova Scotia coast have received approval from Canada’s National Energy Board to export LNG, but they are counting on U.S. producers to supply much of the gas. In that case, they likely need new pipeline capacity to move that gas into New England to provide the supply to underpin their ambitious plans. Pieridae Energy and Bear Head LNG each received Canadian approval of their gas export license late last week.
The two projects are in addition to two others proposed for Nova Scotia and New Brunswick, all of which count on Canadian and U.S. gas making it north to the proposed liquefaction plants. “The big questions are: Where is the gas going to come from, and how are you going to get it to an LNG facility,” Fred Bergman, senior policy analyst with the Atlantic Provinces Economic Council, said in an interview.
Nova Scotia’s offshore fields have supplied gas to Canada’s Maritimes provinces and the U.S. Northeast for years, but will begin a steep decline later this decade unless companies develop new gas reserves. Another option for the LNG plants is Spectra Energy’s plan to build a new gas pipeline from the prolific Marcellus Shale field in Pennsylvania to New England, where it can be moved into Nova Scotia. But that project has run into stiff opposition in Massachusetts.
Oman struggles with growing domestic demand vs. LNG exports
(Platts; Aug. 18) - Over the past two years, Oman has quietly expanded the number of countries to which it exports LNG to well beyond those with which it has long-term supply contracts. In a state that needs increasing volumes of gas to fuel its oil and heavy industrial sectors, this raises far-reaching questions about energy strategy and allocation of gas resources to exports vs. domestic needs.
Oman’s government two decades ago saw LNG exports as an important means of diversifying the economy and moving state revenues away from a heavy dependence on oil exports. A total of 10.4 million metric tons per year of LNG production and export capacity was developed, with plants commissioned in 2000 and 2005. Oman signed long-term supply contracts with Japanese, South Korean and Spanish buyers, which in some cases were also the project shareholders.
Oman planned to negotiate additional contracts with new customers, predominantly in Asia. However, industrial expansion and rampant population growth in Oman, as elsewhere in the Arabian Peninsula, meant that securing domestic gas supply quickly trumped exports as a government priority, leaving the LNG plants significantly underutilized. In 2011, senior government officials suggested that at least one of the plants might be decommissioned once the long-term supply contracts expire.
Top LNG carrier owners join up to market short-term charters
(Reuters; Aug. 18) - Three of the world’s top liquefied natural gas carrier owners have decided to market 14 vessels jointly on a spot-charter basis, part of a new pooling arrangement aimed at cutting operating costs in a depressed market. The pool, consisting of eight modern vessels from Norwegian shipper Golar LNG and three each from Gaslog, headquartered in Monaco, and Dynagas, based in Greece, will commence chartering operations in September, a statement from Gaslog said Aug. 18.
A glut of newly built LNG vessels emerging from shipyards in Asia has been one factor driving down daily charter rates to around $30,000 per day, compared with $130,000 two years ago. "The LNG Carrier Pool allows the participating owners to optimize the operation of the pool vessels through improved scheduling ability, cost efficiencies and common marketing," the statement said. The vessels will seek employment exclusively for charters of 12 months or less.
The move reflects a growing LNG market shift toward short-term trading of cargoes as prices come under pressure and new production from Australia and the United States is expected to add to oversupply. "The real driver primarily is the fact that we are seeing the short-term shipping market growing substantially. In the year to date there have been 97 short-term vessel fixtures versus around 78 in 2014," said Gaslog CEO Paul Wogan. "It's becoming a much more important piece of the (LNG) shipping market.”
LNG spot market in Asia back up to $8
(Platts; Aug. 18) - The Platts LNG Japan-Korea Marker for September deliveries averaged $8.007 per million Btu July 16 – Aug. 14, up 8.3 percent from August, the highest month-on-month gain so far this year, on renewed buying interest and waning availability of spot cargoes in Asia. It was the highest monthly average price since February, when it was $9.911. However, it’s the seventh consecutive month that prices have hung around $7 to $8 since falling from the $9-to-$10 level in January-February.
With northeast Asian end-user demand still tepid and Indian importers reluctant to pay more than $8, the market appeared to have hit a ceiling. Even with the slight boost to $8, year-on-year the marker for September deliveries was down 25.2 percent compared with the average price a year ago at $10.702.
B.C. communities want share of energy project revenues
(Globe and Mail; Canada; Aug. 17) - The indirect cost of workers commuting to energy-sector jobs has prompted 21 local governments in Northwest B.C. to band together and press the province for a greater share of project revenues. Representatives met in Terrace, B.C., on Aug. 15 to formalize the Resource Benefits Alliance. Stacey Tyers, the group’s chairwoman, said workers used to move their families into northwestern B.C. towns for new projects but now most people fly in and out for a job.
“[Workers] use our services, they impact our social systems while they’re here. They use our hospitals … but there’s no contribution to the community in that regard,” said Tyers, who is also chairwoman of the Regional District of Kitimat-Stikine. She said the “unprecedented” agreement between communities empowers them to work on their shared goal of funneling provincial cash from energy projects back to the communities.
The alliance wants a commitment based on a percentage of project profits, and they’ve given themselves three months to get the province to start negotiations. The alliance calculated a 3 percent revenue share would produce $1 billion to cover infrastructure, mitigate social impacts and develop a legacy fund. The communities have amassed an infrastructure deficit of $500 million, Tyers said, as workers stretch capacity to the limit for roads, sewers and water but take their wages back to their home communities.
B.C. LNG hopeful starts site evaluation work
(North Coast Review; BC; Aug. 18) – Chinese-owned Nexen Energy has taken another step in the early days of its proposed liquefied natural gas export terminal on Digby Island, in front of Prince Rupert, B.C., with its provincial application to begin evaluating the site for potential development. The Aurora LNG project applied Aug. 5 to the B.C. Ministry of Forests, Lands and Natural Resources for an investigative-use license for geotechnical and geophysical studies.
If approved, the first phase of work would occur before the end of September, with the second phase to continue through the end of the year. Nexen would set up a temporary staging area for the work, transporting crews and equipment to the site by water taxi, boat, barge or helicopter.
The project has been estimated at about $20 billion to build a plant with capacity of 10 million to 12 million metric tons per year. Nexen has talked of making an investment decision on the project in 2017. The company has started its application process with the B.C. environmental assessment office. In addition to Nexen holding a 60 percent stake, two Japanese companies hold 40 percent of Aurora LNG. The proposal is one of almost 20 LNG hopefuls looking at supplying B.C. gas to overseas markets.
Oregon community debates LNG project workforce housing camp
(The World; Coos Bay, OR; Aug. 17) – The North Bend (Ore.) planning commission has extended the public comment period on Jordan Cove LNG's workforce housing camp application an additional 10 days. Following the commission’s contentious hearing July 20 on the conditional-use permit for the housing camp, city staff received an abnormally large amount of written testimony. They weren't able to get it all online until late Aug. 14, and the commission unanimously agreed Aug. 17 to keep the record open until Aug. 27.
After that deadline, Jordan Cove will have until Sept. 3 for its rebuttal. The commission will meet Sept. 21 to issue a decision, which could be appealed to the North Bend City Council. Meanwhile, the community debate continues. Boost Southwest Oregon members turned out Aug. 17 to support the project. “This area was built on industry, not on tourism. And I love tourism, it's really great if we can survive on that, but it's industry that builds this city, so I'd just like to see more of it,” said Bruce Payne, of Coos Bay.
The anti-LNG crowd also showed up, ready to make their case against the housing camp for the proposed liquefied natural gas plant and export terminal. Simpson Heights resident Ron Wiggins questioned the city sewer system’s ability to take on the camp with almost 1,900 workers.
Santos on target for September start-up of Australia LNG plant
(Sydney Morning Herald; Aug. 18) - Santos has marked a major milestone at its $18.5 billion liquefied natural gas project in Queensland, Australia, that firms up its start-up target for around the end of September, but its shares softened further as the market remained preoccupied by funding concerns and the weak oil price. Santos reported that it had introduced coal-seam gas into the first LNG production unit at its GLNG project on Curtis Island in Gladstone, signaling the huge project is within weeks of start-up.
It will now move to start up the pre-treatment units for the gas, then chill down the liquefaction units to start making LNG. Santos CEO David Knox said the upstream coal-seam gas fields are now "fully operational," while the plant is the final stages of commissioning. Construction at the flagship project has been underway for the past 4½ years. At full production, the plant will be capable of making 7.8 million metric tons of LNG per year. Partners include Malaysia’s Petronas, Korea Gas and France’s Total.
Israel reaches deal for development of offshore gas field
(Reuters; Aug. 16) - Israel's Cabinet Aug. 16 approved a deal with a U.S.-Israeli consortium that would move forward development of the huge Leviathan offshore gas field. The controversial deal reached late last week, which Prime Minister Benjamin Netanyahu believes will bring Israel several billion dollars in the coming years from development of Leviathan and two smaller fields, still needs parliamentary approval.
The deal will allow Texas-based Noble Energy and Israel's Delek Group to keep ownership of the largest offshore field, Leviathan, with an estimated 22 trillion cubic feet of gas. In return for retaining their stakes in Leviathan, the two companies are required to sell off other assets, including stakes in another large deposit called Tamar. Critics of the plan said the government gave into most of the companies' demands and left Noble and Delek with too much power by controlling most of Israel's gas reserves.
Israel, which has gone from an energy-dependent country to a potential gas exporter, currently receives its gas for electricity generation from Tamar, which began production in 2013. Leviathan is slated to begin production in 2018 or 2019 and expected to supply billions of dollars of gas to Egypt and Jordan in addition to supplying Israel. As part of the deal, the companies agreed to invest $1.5 billion in the next two years toward developing Leviathan, and also agreed to lower domestic gas prices for several years.
U.K. to open areas for fracking; opponents vow ‘hundreds of battles’
(The Guardian; UK; Aug. 18) - Large areas of Yorkshire, the northwest and the east Midlands are to be opened up to fracking after the British government announced it will offer a fresh round of licenses for oil and gas exploration, covering 1,040 square miles. Areas near Leeds, Sheffield, Lincoln and Nottingham are to be offered to companies in an expansion plan that green groups predicted would trigger “hundreds of battles” over the future of the countryside.
Ineos, the Anglo-Swiss chemicals group that wants to lead the U.K.’s shale gas industry, was awarded three licenses and said the latest ones could pave the way for gas to be pumped by 2020. The applications are subject to approval by local councils, which will have 16 weeks to decide. The government promised last week to step in if councils fail to keep to the deadline.
The government’s promise to fast-track shale gas in the U.K. comes on the back of strong opposition by environmental groups and a decision by the Lancashire county council to reject an application by exploration firm Cuadrilla on the grounds of visual impact and noise. Both Scotland and Wales previously imposed moratoriums on fracking for shale gas.
EIA lowers its U.S. oil forecast to $49 this year, $54 in 2016
(U.S. Energy Information Administration; Aug. 19) - Amid high uncertainty in the global oil market, the U.S. Energy Information Administration has lowered crude oil price forecasts in its Short-Term Energy Outlook, expecting West Texas Intermediate crude to average $49 per barrel in 2015 and $54 in 2016 — $6 and $8 lower than forecast in last month's energy outlook.
Concerns over the pace of economic growth in emerging markets, continuing (albeit slowing) supply growth, increases in global oil inventories, and the possibility of increasing volumes of Iranian crude oil entering the market contributed to the changed forecast, the EIA said.
Pennsylvania looking at more revisions to oil and gas rules
(Pittsburgh Post-Gazette; Aug. 18) - Pennsylvania environmental regulators are making a list of items they want to see in another major revision to the state’s oil and gas rules, just as they near the end of a contentious rule-drafting process that will have taken half a decade when it is finished next year. In an Aug. 12 conference call to announce the final rules package for aboveground oil and gas activities, Department of Environmental Protection Secretary John Quigley cast his comments repeatedly toward the future.
“This is not the end of the process,” he said. “There is more study needed on additional measures, and there will be more rule-making in a separate process, to ensure responsible drilling and protection of communities, public health and the environment.”
Regulators gave few details about what the next round might hold, but they signaled some areas. Quigley said the agency will release more information about the potential scope of the next regulatory package, probably between October and December.
Rules to control noise from well sites — which the department drafted then dropped from the current package, calling them “premature” — might become part of a future regulation after the agency develops a best-practices guide, state officials said. Quigley said the agency is “looking in particular at public health protections” as it compiles a list for the next regulatory package “because that is certainly one of the areas of biggest concern.” One source said air quality issues would be covered in the next round.