|See Today's Petroleum News Headlines Here.|
Don't Forget the Mackenzie Delta!
Will Alaskan and Canadian Investors Merge Their Interests Into the Most Efficient Outcome for Arctic Gas?
|Globe & Mail, TUESDAY by Jeffrey Jones.
Before the end of the year, Imperial Oil Ltd. and its partners must inform the National Energy Board of its intentions with the Mackenzie gas project, the $16.2-billion pipeline from the Arctic which has stalled due to the flood of cheaper supplies closer to major North American markets.
The people of the Northwest Territories have waited for years for the project to get under way, but with the shale gas revolution in full swing it is doubtful that it will proceed as proposed. In October, Imperial CEO Rich Kruger told The Globe and Mail that the company is studying a revamp of Mackenzie that could see it reborn as part of a larger initiative for export of liquefied natural gas, though a plan is far from finalized.
CBC TODAY. Imperial Oil has announced it will not go ahead with the Mackenzie Gas Project, as the market conditions are just not good right now, says a company spokesman. ... But Pius Rolheiser, spokesman for Imperial Oil, says no construction doesn't mean the project is dead.
Will Arctic gas be monetized within our lifetimes? If so, will we go it alone or will Canada and Alaska merge interests as they once did four decades ago? And what about the elephant in the room: 'fiscal certainty'?
Background. Producers, politicians and natural gas transporters and distributors began designing transportation systems in their minds' eyes even before the 1967-68 winter discovery of Prudhoe Bay's prolific oil and natural gas reserves became reality.
Gas and oil discoveries in the Mackenzie Delta, North of Inuvik, NWT, exacerbated excitement on both sides of the border.
The original, proven gas reserve estimates at Prudhoe Bay of 26 Trillion Cubic Feet (Tcf) have grown to about 35 Tcf, largely as a result of ExxonMobil's later discovery at Point Thomson.
The early Mackenzie Delta gas reserve estimates of less than 5 Tcf have more than doubled since the original discoveries. Some resource (i.e. not proven) estimates suggest reserves exceeding 15 Tcf.
Currently, Alaska Native regional and village corporations, the state of Alaska and the Alaska North Slope Borough have interests in gas reserve development as do the nearby Canadian Aboriginal companies, villages and the Northwest Territories government.
Industry and political interests first debated then agreed upon west coast delivery points for Alaska oil four decades ago, with the uncodified understanding that northern gas would flow to the Midwest, through Canada.
Energy interests in both countries first worked separately at the beginning, and then together, to identify the preferred route and mode for transporting the gas.
A Canadian 'study group' merged with an Alaska 'study group' in 1971. The new consortium carefully chose its leaders. Canadian banker, William Wilder, chaired an impressive management committee including, at one time, 26 oil and gas production, transportation and distribution company CEOs.
(Map: 1970s era competing projects, courtesy of OFC. Arctic Gas, Red; Alcan, Black; El Paso, Blue dotted)
Former TransCanada President Vern Horte became president of Canadian Arctic Gas Study Ltd. and former Alaska Lieutenant Government Bob Ward became president of Alaskan Arctic Gas Study Company--the Arctic gas consortium's two operating entities. Famed Canadian journalist Earle Gray directed communication activity for the Canadian company from Toronto and your author handled communication and government relations functions from Alaska to Washington, D.C. under the close supervision of Ward, the consortium's American vice chairman, William Brackett, and a sub set of the management committee: the Arctic Gas Public Affairs Committee.
At the time, public lands between Prudhoe Bay and the Mackenzie Delta were available for pipeline transportation corridors. On the American side, the Arctic National Wildlife Refuge was then the protected, but less restrictive, Arctic National Wildlife Range.
In pursuing its alternate routes and modes studies, the Arctic Gas Consortium, spent an unprecedented -- at that time -- $250 million, on engineering and environmental studies necessary to prepare applications to the National Energy Board (i.e. NEB) in Canada and the Federal Power Commission (i.e. The FPC is now the Federal Energy Regulatory Commission, FERC).
The study of alternate routes, included moving American gas by pipeline from Prudhoe Bay to the Mackenzie Delta. From there the pipeline would carry both American and Canadian gas to Southern Canada. Some gas could flow to Canadian markets, while the mainline would bifurcate, moving about a third of the remaining gas to the West Coast and intermountain states. The majority of gas would supply mid west and eastern states.
All other alternative routes were found to be uneconomic or far less economically feasible, including two routes south of the wildlife range and El Paso Natural Gas' pipeline/LNG proposal.
The buried refrigerated pipeline through permafrost areas was found to be the most efficient, direct mode of transportation. It would protect the tundra and have the lowest possible operating costs. All alternative modes were found to be economically inferior, including conversion of gas to electricity and transport via high voltage transmission lines, conversion of the gas to LNG and moving it from the Arctic to southern markets using trucks, railroads, dirigibles, submarines, tankers, etc.
The Arctic Gas project failed to gain NEB approval in Canada; the FPC disapproved El Paso's LNG concept; and, the 'approved' Alaska Highway project failed to overcome economic challenges as the true estimates of its cost became known just as natural gas prices became depressed in the early 1980s. When gas prices improved twenty years later, governments and industry again became interested in creating and Arctic gas transportation project.
Discussion. Since Arctic Gas days, American and Canadian governments have made access over the public lands between Prudhoe Bay and Inuvik more restrictive.
One also notes that when the original Arctic Gas project was first studied, the low cost of taxation helped overcome the high cost of Arctic construction, procurement and labor. But as the 1970s progressed, producers became more and more alarmed that in Alaska "a deal was not a deal". That is, the Governor and Legislature demonstrated no desire to restrain spending or taxation just because companies calculated their original lease sale bids and later investments on the circumstances then prevailing. Oil companies in the 1970s experienced almost annual tax increases.
In 1981, Governor Jay Hammond (NGP Photo), joined by legislative leaders in both parties, agreed upon a 'fair share' tax methodology, which provided fiscal certainty until after the turn of the century.
In 2006 Governor Frank Murkowski (NGP Photo) proposed an increase in the severance, or production tax in return for a guarantee of fiscal certainty that would protect future producer investments--including a gas pipeline investment. The producers and Governor shook hands, in good faith. Then, the legislature acted to increase the production tax but denied the recommendation for fiscal certainty.
Adding insult to injury -- from an investor perspective -- incoming Governor Sarah Palin (NGP Photo) then proposed a larger production tax increase which the Legislature increased to an even higher level and then decided to apply retroactively -- with Palin's support.
Last Spring, the Legislature adopted Senate Bill 21, reforming Palin's production tax. With over 90% of the Alaska state operating budget dependent on steeply declining oil production, elected leaders are intent on improving the climate for investing in continuing exploration and development -- and in a gas pipeline.
While an improvement in tax policy is now and will likely continue to produce more investment, it cannot overcome the cloud of distrust created by previous government decisions—and a current effort by some legislators, unions and environmental activists to repeal SB 21. Only some sort of fiscal guarantee against inappropriate government expropriation of private revenues will serve to support an additional $40 - $60 billion gas pipeline investment -- in our opinion.
Even if the Governor and lawmakers were to favor such a guarantee, it would surely be accompanied by vigorous debate and opposition since Alaska's constitution jealously guards the State's right to modify tax policy.
Yes, we agree there are certain valid roles for government subsidy. Roads, bridges and docks come to mind.
As to energy projects, the Alaska Bradley Lake Hydroelectric project is a wonderful example of a proper role for government.
On a larger scale, the Susitna-Watana Hydroelectric project -- as Norway has found -- could use today's oil dollars to provide 50 or 100 years of inexpensive energy to citizens. And, yes, until this long-lead-time project comes on line, Alaskans will need other energy sources.
Furthermore, tax and regulatory incentives have their place and have worked in the Cook Inlet oil and gas basin.
Our concern is that too many unprioritized projects levered into existence by public subsidy and designed to energize the same markets could waste money, deflect private investment and result in both abandoned efforts and a diminished treasury.
Adding to that confusion are well intended special interest groups and politicians supporting a bewildering array of energy projects, many of which are not proven to be economically feasible. Most persevere on the strength of past or present public subsidy, political support and a “strategy of hope”. These include:
- a small diameter, in-state, gas pipeline from Prudhoe Bay to the Cook Inlet area--largely justified by consumer demand in Interior and Southcentral Alaska.
- a large diameter pipeline/LNG system designed to move Prudhoe Bay gas to south central Alaska, designed primarily for export to Asian markets, but also justified by consumer demand in Interior and Southcentral Alaska.
- tax incentives to Cook Inlet producers also justified by consumer demand in Interior and Southcentral Alaska.
- a state financed hydroelectric dam, also largely justified by consumer demand in Interior and Southcentral Alaska.
- public/rate payer subsidies for wind generation justified by consumer demand in Southcentral Alaska.
- competing LNG truck projects to move natural gas molecules south from Prudhoe Bay, largely justified by consumer demand in Interior Alaska.
- a clean coal power generation project also justified largely by consumer demand in Interior Alaska and Southcentral Alaska.
- a state supported network of high voltage transmission facilities, carrying natural gas generated electricity south from Prudhoe Bay, largely justified by demand from villages throughout rural Alaska
The Palin Administration, in our opinion, grievously erred by proposing a financial incentive for the large diameter, Alaska gas pipeline project. Palin erred because some of her objectives (i.e. "must haves", in return for the subsidy) were already covered under terms of the Alaska Natural Gas Pipeline Act of 2004 and because her action thwarted competition, to a large degree, and limited state prerogatives in other ways.
In any case, the large diameter pipeline is the project most likely to survive, monetize Alaska gas and provide for most foreign and domestic consumer needs in the long term. This is because it is almost completely under private control of investors who -- under proper conditions -- will provide the funding and markets and accept most of the risk for project completion. The other projects, surviving as they must on the tide of diminishing tax revenues and the brilliance of bureaucratic agencies are at best in competition with one another and at worst, are short term remedies accompanied by long term salvage headaches.
Had we more time and had the gentle reader more patience we surely could have put finer clothing and adjectives on the shoulders of many of today’s well-intended government energy projects. But in fairness, had we done so, we’d have had to extend this essay further to objectively discuss the logical infirmities of each--which must be reserved for a future commentary.
For now, we offer this conclusion:
The state should establish priorities for all pending, state supported energy projects.
For example: if Cook Inlet oil and gas incentives produce significant new gas supplies, perhaps subsidies for other gas projects should be automatically suspended.
One also muses that high diesel fuel is the major driver for subsidized gas and electric projects for Fairbanks--but we hear virtually no discussion about the potential for Alaska to provide subsidized royalty oil to Fairbanks for local refined products. This solution could both heat homes and generate power--a stopgap measure that protects life and property until a large diameter gas pipeline and/or Susitna-Watana hydro project can provide sufficient, reasonably priced energy.
We first offer a perspective that -- aside from the grand, Susitna-Watana Hydro dam, the energy project most likely to survive and succeed, will be the project that remains closest to the free markets. Fast moving events can more easily confuse slow reacting bureaucratic decision makers than more agile entrepreneurs intent on making and not losing money for their shareholders by providing valuable services and products to the marketplace.
Secondly, we observe -- without the liability of special interest influence -- that it would be eminently logical were American and Canadian companies to once again merge efforts. By combining large volumes of Canadian and Alaskan gas, economies of scale could produce an incrementally better feasibility profile for the project.
A more efficient project would provide more royalties and tax revenue to governments.
A joint project would benefit the related Inupiat/Inuit of the Arctic Slope Regional Corporation lands and Canada’s Inuvialuit and Gwich’in aboriginal corporations through contracting opportunities, local property taxes and because some production in both areas flows from indigenous lands. Other Alaska Natives could benefit from a more efficient project though the 7(i) revenue sharing provision of the Alaska Native Claims Settlement Act (ANSCA). The most efficient possible project would provide the highest returns to producers, Native shareholders and the state tax/royalty income stream in a highly competitive world energy environment.
Today, the proliferation of shale gas discoveries throughout North America makes that market less attractive for Arctic gas, if not infeasible, when compared with certain Asian markets.
Since foreign markets will likely become the destination for Arctic Gas, LNG transport becomes the mode of transportation.
That leaves routing. The Globe & Mail and CBC pieces above suggest that Imperial is considering new options for Canadian Arctic gas. Imperial’s US brother, ExxonMobil, is an influential participant on the US side. Other Alaska producers have interest in Mackenzie Delta gas and TransCanada has been a major supporter of the Mackenzie Valley Pipeline's Aboriginal Pipeline Group and all were once involved in the Arctic Gas Project. One expects that the subject of a joint, American-Canadian project has at least been discussed, if not studied.
The route, on first glance would involve an approximate 750 mile straight shot from Prudhoe Bay down to the Nikiski area of Cook Inlet. Gas could flow by pipeline from the Mackenzie Delta to Prudhoe Bay. Logically, the two governments should allow that pipeline route to safely bury a pipeline in the permafrost on shore over currently restricted areas, like ANWR. Less logically, a refrigerated line could be buried in the tidal lands offshore ANWR though it would be more environmentally challenging, more expensive, and subject to ice scour and certain corrosive challenges.
Those who opposed earlier "over the top" routes for moving Alaska gas to the Mackenzie Delta and then down to the midwest, could find this reversed concept for movement of Arctic gas/LNG to Asia more palpable
So will Arctic gas be monetized in our lifetimes? Depends on how long we live. Some of us have longer than others. But all of us have lived long enough to know that whether the Alaskan and Canadian Arctic gas reserves are economically combined and transported together, or not, there will be permitting, financing, labor and engineering challenges galore…complicated by environmental extremist opposition, political intrigue and constituent greed.
On top of that will be the final question: will Alaska be able to provide the financial and tax certainty necessary to assure investors that their investment will be treated, in good faith, with respect. If Canada is involved, could that government provide fiscal certainty on its side of the border?
A bad news ending. If government is incapable of creating a fiscal certainty guarantee, no private sector investor in his right mind will spend any more time, energy or treasure considering the feasibility of a gargantuan Arctic LNG/Pipeline project involving any route or mode of transportation.
A good news ending. If solid, fiscal assurance is created, a whole new world of opportunity, prosperity and promise for investors, citizens and the children of the next several generations could reward all concerned.
(Note: We repeat for new readers that our goal is to provide accurate, useful information to readers. Accuracy is paramount. In support of our goal, we invite our thousands of readers to send us additions or corrections that contribute toward the accuracy of our communications. When a valid addition or correction arrives, we try to make appropriate changes immediately. –dh)
From the EIA: State Energy Profiles enhanced and renewables sections added
As with national trends, the energy sectors in each state continue to experience rapid changes, including increased oil and natural gas production, new renewable electricity generation, and changing motor gasoline prices. With these and other energy trends in mind, the U.S. Energy Information Administration updated its State Energy Profiles, which are available through EIA's State Energy Portal. There are new analytical narratives on the energy sectors of each of the 50 states, the District of Columbia, and five U.S. territories.
Portal users can also tap into the multilayer mapping function to show user-selected views of fossil and renewable energy resources, oil refineries, pipelines, power plants, transmission lines, and other energy infrastructure.
Policy makers, energy analysts, and the general public can access revised state-level analysis on the petroleum, natural gas, coal, and electricity sectors. In addition, the narratives feature a new section on renewable energy that details each state's renewable resources, including biomass, geothermal, hydroelectricity, solar, and wind, and how those resources are being developed.
State Energy Profiles give users detailed portraits of energy production, consumption, and energy prices at the state level. They feature almost 90 key data series, state Quick Facts, and charts for each state. Users can learn state facts such as:
- Texas is the nation's top crude-oil producer and accounts for more than one-fourth of the nation's petroleum-refining capacity.
- Pennsylvania natural gas production more than quadrupled since 2009 because of increased development of the Marcellus Shale, placing the state among the top producers nationally.
- Washington ranks first in the nation in hydroelectric generation and has the lowest electricity prices.
- Coal produced in Kentucky is distributed to about one-half the U.S. states.
- The world's largest photovoltaic solar electricity generation facility is currently under construction in Arizona.
- Nevada is second in the nation, after California, in the amount of geothermal power produced.
The portal also features state rankings for 10 key energy statistics, a find function to search for state data across EIA, a compare screen that allows users to look at states side by side for a variety of energy indicators, and links to additional resources.
Yesterday, Alaska Governor Sean Parnell (NGP Photo) unveiled his FY 2015 budget, proposing $1.3 billion less in general fund spending than the current year and 150 fewer positions. This FY 2015 budget proposes 18.4 percent less in general fund spending than the current year.
IN CASE YOU MISSED IT:
The Department of Revenue’s fall revenue forecast, released last week, showed a decrease in revenue due to lower oil prices, declining production, and the closing out of capital credit tax liabilities from the previous oil tax system. In fact, at current oil prices, Alaska’s revenue stream is about the same under the More Alaska Production Act, and the new tax system better protects Alaskans at even lower oil prices.
The new budget proposal includes a recommendation to transfer $3 billion from a budget savings account into the state’s retirement trust funds. The effect is to pay down debt, resulting in lower fixed annual payments for the state. “We need to tackle this problem now instead of pushing it off to our children and grandchildren,” said Parnell. (More: omb.alaska.gov).
What the other side is up to:
12-11-13. Daily Kos had a gigantic year. Traffic is up, our email list doubled in size, our Facebook page is exploding, and our community of writers and commenters is growing.
But more importantly: Our work mattered. (Oh, and my wife and I had a baby!)
This is what CNN said in their post-mortem on filibuster reform:
What was known as the nuclear option yesterday is known as the Reid Rule today. Time will only tell if the Reid Rule is productive or destructive. But we'll leave that to the historians.
As for how it became the Reid rule, it took a coordinated and sustained effort from an unlikely place—progressive activists on the blogosphere.
Daily Kos was the first group to start organizing for filibuster reform, way back in 2010. People called us crazy when we did.
Well, three years and an astonishing 900,000 actions later, we made filibuster reform the mainstream Democratic policy position—and we won a vote on it on the floor of the United States Senate.
This victory—like all of our work—couldn’t have happened without you.
Two weeks ago, we set a goal to raise $100,000 by the end of the year so we could keep doing the work we do. Well, as you can see from that fundraising thermometer, you just blew that goal away.
So, can you chip in $5 to help us reach our new goal of $200,000 so that we can expand our groundbreaking activism work in 2014?
Ziff Energy, a division of Solomon Associates, yesterday announced the release of its North American LNG Exports to 2020 report. According to spokesperson, Stephanie Wick, report reviews the world liquefied natural gas (LNG) supply, Asian demand, and LNG exports from North America. It also details how countries including Australia and Russia, as well as some in East Africa and the Middle East, are actively developing LNG supply.
Figure 1 shows global LNG supply by project development phase, which includes existing LNG, under construction LNG, and proposed LNG. The report indicates Australia, Canada, and the United States will lead the world in LNG liquefaction additions.
Additional Ziff Energy reports recently released and available for purchase include:
• Growth of North American Natural Gas Demand to 2020
• Western Canada Oil Production to 2020
• Gas for Power Generation to 2020
• 2012 U.S. and Canadian Gas Reserve Replacement
• Western Canada Natural Gas Production to 2020
• Canadian Gas Exports to 2020
• North American Pipeline Costs
• U.S. Gas Production Outlook to 2020
• Associated Gas Production Outlook to 2020
• Gas Price Differentials Forecast to 2020
• Henry Hub Gas Price Outlook
• Natural Gas Production Headwinds & Tailwinds
• North American Natural Gas Storage
• Unconventional Natural Gas Demand
• Mexico Natural Gas Outlook to 2020
About Ziff Energy
Ziff Energy, a division of HSB Solomon Associates LLC (Solomon), provides upstream performance assessment/improvement and custom consulting to the worldwide energy industry in more than 40 countries, and natural gas consulting services in North America. Solomon is the world’s leading performance improvement company for energy companies seeking to identify and close gaps in operational performance. Combining proven, patented methodologies with objective data analysis, and led by a team of oil and gas consultants steeped in hands-on operational experience, Solomon consistently helps clients with energy-intensive assets achieve greater efficiencies, enhanced reliability, and improved margins. Solomon is part of HSB Group, Inc. Learn more about Ziff Energy at http://www.ZiffEnergy.com. For information about Solomon, visit http://www.SolomonOnline.com.
ADN Guest Editorial by Lynn Johnson (NGP Photo). A state that is 90 percent dependent on oil revenues cannot afford to lose 200,000 barrels of daily oil production -- and continue to prosper. Yet that has been the state's fate under the ill-advised oil tax policy known as ACES. Since ACES passed in 2007, North Slope production has fallen almost 31 percent while production is up everywhere else in the nation. ACES caused Alaska to miss out on the oil boom brought about by high oil prices. That should concern every Alaskan interested in good jobs, a sound economy and a bright future. It certainly raised my hackles, which is why I joined with other Alaska businesses, Native leaders, unions and a broad cross-section of individual Alaskans to form the Make Alaska Competitive Coalition (MACC) three years ago to advocate for a change to ACES. We funded our efforts with our own pocketbooks as MACC accepts no money from oil producers. More
Globe & Mail by Eric Reguly. Oil prices fell as much as 2 per cent on Monday (Today), after Iran reached a deal with six world powers.... Petroleum News. Troubled times in Canada - 11/24/2013 Obstacles piling up in front of Canada's petroleum industry and its government allies are accumulating so rapidly that hopes of exporting ...
ADN Commentary by Paul Jenkins re: Repeal of Oil Tax Reform:
"Two former Democratic governors, Tony Knowles (NGP Photo-r) and Bill Sheffield (NGP Photo-l), have expressed opposition to any repeal. Just about everybody running for important state offices -- from governor on down -- is on record for or against the repeal." (NOTE: We urge readers who haven't already, to review the Competitiveness Review Board presentation given friday to Commonwealth North. Our tax commentary for many years is founded on the principle that Alaska must be competitive to survive, economically. This technique is one effective way of calculating competitive positioning as a factual basis for tax and regulatory decision making. We believe that while SB 21 is a step in the right direction to become less uncompetitive, Alaska will have to do more to attract the tens of billions of dollars needed to reverse the downward economic trend. The new 'Board' has the economic future of Alaska resting on its forthcoming decisions and recommendations. -dh)
|Another News Miner Community Perspective on Mining, by Kyong Hollen.
The first bar of gold was poured in 2006 and production has been steady ever since.
This has meant not only benefits to the company, but jobs for Alaskans, business for suppliers, added revenue to the state and philanthropic scores for Delta Junction, Fairbanks and the University of Alaska Fairbanks. In fact, Pogo recently pledged $1 million to UAF for a mining engineering endowment that will allow graduate students to work on long-term projects.
Fairbanks News Miner, Alliance Leader, Rebecca Logan (NGP Photo), Speaks Out On Mining Benefits. "Anglo American’s recent departure from the Pebble Mine project has generated contentious debate throughout the state and in our nation’s capital about the future of domestic mining. ... It’s a hard pill to swallow considering that our nation’s $6.2 trillion worth of mineral resources could be developed responsibly, generate economic growth, support new high-paying jobs and strengthen domestic industries. ... just look at the more than 9,500 Alaskan jobs the mining industry supported last year alone. These jobs are among the highest paying in the state with an estimated average annual salary of $100,000 — more than twice the state average. Mining not only creates jobs at mine sites, but also supports local businesses, generating employment at grocery and supply stores, auto dealerships and hotels. ... Mining supported nearly 2.2 million American jobs and contributed $232 billion to the nation’s GDP in 2011 alone. The very minerals mined here in Alaska and throughout the United States are essential elements to nearly every domestic manufacturing chain, from the automotive sector to defense and renewable energy. Minerals supply our industries with the raw materials they need to continue churning out innovative American products. More here....
Commentary: Yesterday, BP's Dawn Patience provided a report demonstrating that the company spends $1.5 billion and supports more than 350 vendors, 2,300 BP employees and 22,500 total jobs in Alaska. Here's the .pdf.
The company's significant, Alaska projects include, "13 oilfields on the North Slope (including Prudhoe Bay, Endicott, Northstar and Milne Point), which account for about two-thirds of Alaska oil production." The report goes on to note that the company spent over $25 billion with 15,000 vendors throughout the country in 2012, creating a national economic impact of $147 billion.
The Alaska impact is great, but we believe it to be a fraction of what it could be were state and federal energy policies more reasonable. BP spent about 6% of its total US expenditure in the country's largest state. We see that number as a reflection of two things: 1) the difficult cost challenge of producing new oil on Alaska lands and, 2) national regulatory restrictions on access to oil rich federal lands and 3) very competitive domestic energy investment alternatives.
We provide these Alaska and national numbers to emphasize the choices investors have. Being truly aware of the competition for capital should convince policy makers that in order to retain investment, their areas need to be competitive.
In Alaska's case, having some of the highest taxes, labor and operating costs in the free world does not translate to, "competitive" over the long haul...especially when most of our competitors don't need an 800 mile pipeline to bring oil and gas to a market hub and when most are located in more temperate zones that are less remote to the markets.
To add insult to injury, Alaska's tarnished reputation is to increase taxes retroactively -- after investment has been made -- and when a moderate tax reform is enacted, lawmakers make its effective date prospective, not retroactive.
Furthermore, a pending citizens initiative to repeal oil production tax reform, in effect, cannot but help delay if not derail certain investor decisions--which is probably what the environmentally oriented initiative sponsors hope for.
Investors are also mindful that Alaska's unsustainable spending/income trend makes any of today's investors potential targets for massive tax increases in the not too distant future.
To ignore these realities is to ignore the responsibility of leadership and reflect a misunderstanding of economics. -dh
NEW ANWR BATTLE ERUPTS
Juneau Empire (TODAY). U.S. Senators Maria Cantwell (D-WA) and Mark Kirk (R-IL) introduced legislation Wednesday that would designate 1.56 million acres of land in the Alaska National Wildlife Refuge as wilderness. ...
Sen. Lisa Murkowski (NGP Photo) called the bill “anti-Alaska legislation” and said it would ban oil and natural gas development in the non-wilderness portion of ANWR.
“I cannot understand how, given Alaska’s decades of responsible energy development, this is still viewed as a good idea or a necessary action,” Murkowski said. “At a time when our nation clearly needs more jobs, more revenues, and more domestic energy, this bill defiantly ignores all three.”
Alaska State Rep. Charisse Millett (NGP Photo), R-Anchorage, issued a statement Thursday saying that it was unfortunate that “some members of Congress are more interested in waging a policy fight based on outdated beliefs that fly in the face of reality.”
“It’s disappointing, though not surprising, that senators from states claiming to be good faith neighbors with Alaska are once again attempting to dictate its economic future,” Millett said in the statement. “Alaska has a track record of responsible oil and gas development that spans decades.”
Petroleum News. After a recent speech in which Interior Secretary Sally Jewell laid out the Obama administration’s vision for conservation, Alaska’s Democratic senator, Mark Begich (NGP Photo), fired her a letter promising a fight. (See our Commentary)
Today's News Links From Consumer Energy Alliance:
Huffington Post: On Fracking, It's Time to Discuss Facts
In the past few years, the use of the technology of hydraulic fracturing to produce oil and natural gas has dominated national energy policy discussions. Much of the discourse has been fraught with fear, misunderstanding and, in some cases, misinformation. However, in some cases, dispute is slowly being replaced by reasoned debate, acceptance and increasingly responsible regulation and use of this technology.
Breaking Energy: 10 Tips to Save Energy Consumers Money this Winter
The EIA’s latest Short-Term Energy and Winter Fuels Outlook finds US households heated with natural gas, propane and electricity face higher heating bills this winter. Higher heating costs can hit families on fixed budgets hard, so the Consumer Energy Alliance compiled a list of winter energy-saving tips that can soften the increased heating cost burden anticipated this season.
Boosted by massive oil and gas production from the Eagle Ford shale oil play southeast of San Antonio, the U.S. Energy Information Administration reports that the U.S. is overtaking Russia and Saudi Arabia and will become the world's largest producer of oil and natural gas in 2013, 1200 WOAI news reports. The average production in the U.S. is the equivalent of about 22 million barrels of oil natural gas and related fuels. That compares to Russia's daily production of about 21.8 million barrels per day.
As if consumers don't have enough problems with a sputtering economy, heath care bills and a wheezing jobs market, winter and its bigger heating bills are around the corner. According to the U.S. Energy Information Administration, more than 90% of American households will see higher energy bills this winter. The EIA says the total cost for natural gas heat this year will climb 13%, to $679. Homes with electric heat (38% of the total housing stock) will fare better, as prices will climb by only 2%.Either way, homeowners and renters who handle their own utility bills should take steps to keep heating costs down -- even before the weather really turns cold.
Huffington Post: Where Is Obama on Climate Treaty?
n Warsaw, 189 countries are represented in the negotiations that started Monday. Many people are rightly wondering about the country responsible for the most climate pollution in the atmosphere. There are reasons for hope about the U.S. reducing its emissions, but Obama still shows no indication he's serious enough to give international climate policy the force of law. According to the Energy Information Agency, U.S. carbon dioxide (CO2) emissions have decreased to 1992 levels, achieving about a 13 percent cut since 2005 levels (other climate pollutants are uncertain). Much of this CO2 decrease is due to dropping coal for electricity.
The Tennessee Valley Authority said it will cut its use of coal-fired electrical generation by about half of current levels, shuttering some units and converting others to burn natural gas to meet tighter emission-control regulations. The board of the Knoxville, Tennessee-based public utility voted today to close eight coal-burning generators. Among them are two that will be shut and converted to burn natural gas at Paradise Fossil Plant in western Kentucky, which U.S. Senate Republican leader Mitch McConnell, who represents the state, had urged be kept as coal units.
750KTRH AM: The U.S. is Headed for Energy Independence
Energy independence is coming for the United States much sooner than most oil industry watchers had expected. New advances in technology push developments like the Eagle Ford shale formation as a source of crude, meaning the U.S. could be the top oil producing nation in the world by 2016. And, it goes further than that.
California is replacing oil with cleaner-burning fuels in cars and trucks, thanks to a landmark low-carbon fuel rule, according to a recent report. But the rule's fate is uncertain amid legal chaos and a shortfall in the production of clean biofuels. The report, conducted by researchers at the Institute of Transportation Studies at the University of California, Davis, said California drivers saved more than two billion gallons of gasoline in the two years since the launch of the rule—about as much gas as the state uses in two months. The carbon emissions reduction is equal to taking half a million vehicles off the road.
The Wall Street Journal: West Virginia Preps for Shale-Gas Play
A Brazilian conglomerate unveiled a proposal Thursday to build a multibillion-dollar natural-gas refining complex in West Virginia—the biggest such development in the state as it tries to profit from the region's drilling boom. The proposed project by Odebrecht Group, a privately held São Paolo-based engineering, construction and petrochemical company, would include a plant known as an ethane cracker, where natural gas is turned into ethylene, a chemical-industry feedstock. It would also include three plants to produce polyethylene, which is used to make numerous products, from plastic bags to pipes.
Reuters: COLUMN-Shale 2.0, going global: Kemp
How quickly the shale revolution spreads from North America to the rest of the world is the single most important factor affecting the outlook for oil and gas markets over the next two decades. For pessimists, the conditions that made the shale revolution possible in the United States will be difficult to replicate, slowing the spread of shale oil and gas production. In its 2013 World Energy Outlook, the International Energy Agency projects shale oil production will reach almost 6 million barrels per day (bpd) by 2030, about 6 percent of global supplies.
Citizens’ Voice: Gas companies: 'We're hiring'
Although there won't be any wells in the Wilkes-Barre/Scranton area, there will still be lots of natural gas-related career opportunities, people in the industry say. From truck drivers to laborers, engineers to scientists, the jobs are out there. "We're hiring, and the pay is good," John Augustine of the Marcellus Shale Coalition said of the industry after a seminar at the East Mountain Inn on Thursday. Although the Marcellus Shale underlies Luzerne and Lackawanna counties, its natural gas was "cooked out" by the high temperatures that hardened the coal.
Language on the proposed Keystone XL pipeline buried on page 491 of the International Energy Agency’s most recent World Energy Outlook may provide more fuel for opponents of the project, but it could offer a leg up to project proponents, as well. The WEO 2013 forecasts that oil sands production will average 4.3 million barrels per day in 2035, up from 1.8MM bbl/d last year, “contingent on the construction of major new pipelines to enable the crude to be exported to Asia and the United States.” The pipelines in question are Keystone XL, which would link Alberta oil sands to Gulf Coast refineries, and two pipelines from Alberta to Canada’s western coast to allow for Asia-Pacific exports.
Houston Business Journal: Rail vs. pipeline debate lacks facts and fairness
The production of oil in the Bakken Formation and revitalized Spraberry oil field is playing central roles in powering our country’s march toward energy independence and in reshaping our national energy debate. Unfortunately, one aspect of that debate has been tainted by bad research and dubious claims. None have been as egregious as one advanced by some increasingly desperate Keystone XL backers who have asserted in various forums that the use of rail to move crude oil from fields to refineries puts the public in jeopardy.
Juneau Empire: Legislation introduced would prevent drilling in ANWR
U.S. Senators Maria Cantwell (D-WA) and Mark Kirk (R-IL) introduced legislation Wednesday that would designate 1.56 million acres of land in the Alaska National Wildlife Refuge as wilderness. “The Arctic National Wildlife Refuge is a national treasure that must be preserved for future generations to experience and enjoy,” Cantwell said in a statement. “I’m proud to join Senator Kirk on this bipartisan bill to protect one of the last pristine public lands in America. We need to advance forward-looking solutions for America’s energy future, while preserving this treasured public land and the unique ecosystem that depends on it.”
Denver Business Journal: Broomfield vote flips, city says frack ban approved, will recount
Voters in Broomfield approved a ban on hydraulic fracturing, better known as fracking, within the town’s borders, by a razor-thin margin of 17 votes out of 20,683 cast, according to the latest tallies by city officials posted Thursday night. The margin is so narrow that a recount is mandatory, according to the city. That's a switch from the unofficial results posted after the elections ended Nov. 5, which showed the measure losing by about 13 votes. The ballot question called for a five-year moratorium on fracking.
The Wall Street Journal: The Right Way to Frack
What is one thing you wished the public understood about fracking? BILL RITTER: The public should understand that hydraulic fracturing can be done in a way that is both environmentally sound and socially responsible. Oil and gas producers have been developing and using hydraulic fracturing techniques for decades. It has only been in the last decade, however, that hydraulic fracturing has been combined with directional drilling, allowing producers to tap tight shale oil and gas reserves that previously were considered non-retrievable.
The Wall Street Journal: ‘Fracking’ Is a Loaded—and Misunderstood—Term
Pro or con, “fracking” has become a politically charged word. In the 1984 textbook “Fundamentals of the Petroleum Industry,” hydraulic fracturing or “fracking” is defined as follows: Modern fracturing uses pressured water, gels of various types, and other fluids that are compatible with the formation and hydrocarbons… to inject tons of fluid thousands of feet into the earth at nearly unimaginable pressures…great enough to lift and break up the producing formation…When the fracturing pressure is removed, overburden pressure reasserts itself and sometimes reseals the formation as tightly as before. The contractor, therefore, pumps a propping agent (e.g. usually sand) down the hole with the fluid. It props (tiny) fractures open against formation pressure when the fracturing pressure is gone.
Commentary: Late yesterday, we received a copy of a letter (below) from Alaska Governor Sean Parnell (NGP Photo) addressed to citizens.
We have supported tax reform in the spirit of fairness. However, in the sense of 'enlightened self interest', we know that absent a competitive investment climate in an oil-abundant era, Alaska's production and economic strength will continue to decline.
Tax Commentary: We would suggest that economic principles apply throughout the free market--whether one is employed by the film, cruise, fishing, farming, manufacturing or oil industry. "The more you tax and regulate, the less you get from that source."
Our friend, Bob Neumann, recently said, "The state legislature and governor’s office need to recognize the economic benefits that the cruise industry brings to our state. Thousands of jobs would not exist without the cruise industry. Overtaxing and overregulating has a direct effect on the industry. A healthy balance must be permanently grounded in our state and not be continually revisited with each new legislature or governor. This can only be achieved through education and promotion of the industry directly with the support of our government on the local and state level."
Next August, voters will face a referendum question of whether to keep tax reform or repeal it. We believe Parnell's communication efforts are valid and that Alaskans will come to understand how important it truly is to preside over a fair, predictable and competitive investment climate.
Absent those qualities, who would want to invest gas pipeline or other project money in a place with the most remoteness to markets, the most difficult climate, the highest wages, the highest taxes, some of the most demanding regulations and a history of changing the rules of the game AFTER investments have been made? -dh
Over the past several months, Alaskans have started to see the benefits of our new oil tax structure, the More Alaska Production Act. Companies and investors are responding with long-term development plans for the North Slope, which is resulting in new opportunities and jobs for Alaskans. We are even seeing new entrants coming to Alaska.
Our new tax structure is working, and that’s great news for us, for Alaska’s economy, and for future generations. Let me share with you some of these recent announcements:
Caelus President James Musselman: “We are attracted to Alaska because of the enormous geologic opportunity as well as the incentives, such as SB 21, that the state has put in place to encourage energy investment by independent oil and gas companies.”
She [Janet Weiss] said it will add some 200 new jobs and result in between 30 and 40 additional wells being drilled each year for at least five years. Beyond that, Weiss said, BP and its partners are evaluating a $3 billion project to pursue new developments in the western part of the greater Prudhoe Bay area.
After ConocoPhillips added an extra drilling rig to its Kuparuk field this summer, citing the more favorable tax policy, Little Red Services has had more work at that field, [President and CEO Doug] Smith said. The company's man hours are up 20 percent there, and Little Red recently added eight full-time workers and increased its fleet of hot-oil trucks to six to meet the extra demand, Smith said.
“…. those could easily increase the total of pending new projects to $5 billion.”
ConocoPhillips is planning to bring an additional rig to the Kuparuk field this spring and working with co-owners to fund a new drill site on the Kuparuk River field, the company said in a Wednesday announcement.
The renewed optimism is creating opportunity across our state and driving Alaska’s economic comeback. Many other Alaskans and Alaska businesses are benefitting as well. Take a look at what Alaskans are saying.
Make no mistake, the More Alaska Production Act is working for Alaskans.
Governor Sean Parnell