BOEM Seeks Public Comment on Hilcorp's Liberty Prospect Development and Production Plan
NGP Readers, please comment on Hilcorp’s Liberty DPP. The DPP can be viewed at: http://www.boem.gov/Hilcorp-Liberty/. -dh
ANCHORAGE, Alaska: Bureau of Ocean Energy Management (BOEM) announcement:
A Development and Production Plan (DPP) received from Hilcorp Alaska, LLC (Hilcorp) relating to oil and gas development on the Liberty Prospect was deemed “submitted,” – or deemed complete to move forward in the government’s review process – initiating a 60-day period for the public to review and comment on the DPP.
This announcement does not mean that the DPP has been or will ultimately be approved; it merely denotes that BOEM has conducted a preliminary assessment and determined that Hilcorp has submitted the information required under regulations for a Development and Production Plan to move forward in the regulatory process. This area covers two leases that were issued in 1991 and 1996 under previous Administrations.
A DPP describes development and production activities proposed by an operator for a lease or group of leases. The description includes the timing of these activities, information concerning drilling methods, the location of each proposed well or production platform or other structure, and an analysis of both offshore and onshore impacts that may occur as a result of the plan's implementation.
“BOEM will conduct a rigorous evaluation of this DPP, recognizing the significant environmental, social and ecological resources in the region and honoring our responsibility to protect this critical ecosystem, our Arctic communities, and the subsistence needs and cultural traditions of Alaska Natives,” said BOEM Director Abigail Ross Hopper. “ Any activity proposed offshore Alaska is scrutinized using the highest safety, environmental protection, and emergency response standards.”
Hilcorp proposes building a gravel island in approximately 19 feet of water to support a work surface of about 9.3 acres for the drilling facility at the Liberty Prospect, a site that has been evaluated and explored by industry beginning more than thirty years ago. The proposed facility would be similar to the company’s Northstar Production Facility, which has been in operation since October 2001, and which is located in state waters about 40 feet deep and about 31 miles to the northwest of the proposed Liberty Island location. The Northstar facility has a work area of about six acres. The proposed facility would be built on a man-made gravel island in federal waters about five miles off Alaska’s Beaufort Sea coast to develop hydrocarbon resources on the U.S. Outer Continental Shelf.
Gravel islands similar to the one proposed have been built in State of Alaska waters to support other production facilities at the Oooguruk and Nikaitchuq fields in the Beaufort Sea.
BOEM will begin its comprehensive review of the DPP by accepting and reviewing public comments through Regulations.gov, the federal government’s official rulemaking portal.
As part of its regulatory program, BOEM will issue a Notice of Intent to prepare an Environmental Impact Statement (EIS) on September 25, 2015. This EIS will analyze the DPP’s potential environmental effects, and will provide opportunity for public comment. It is anticipated that the environmental analysis of the DPP will take several years and will be closely coordinated with numerous federal and state agencies and consultations with appropriate federally recognized tribes. BOEM will not make a decision to approve, disapprove, or require modifications to the DPP until after the completion of the EIS.
To comment, or to review comments, go to www.regulations.gov and enter “BOEM Liberty” in the search field or BOEM-2015-0096. Comments must be received by midnight Eastern Daylight Time on the date indicated in the regulation.gov announcement.”
Hilcorp’s Liberty DPP can be viewed at: http://www.boem.gov/Hilcorp-Liberty/.
The agency ends its announcement with this statement:
"The Bureau of Ocean Energy Management (BOEM) promotes energy independence, environmental protection and economic development through responsible, science-based management of offshore conventional and renewable energy resources."
9-30-15 Natural Gas Reserves Tax: Governor Walker's Brilliant Strategy For Encouraging Industry Investment in Alaska
Natural Gas Reserves Tax: Governor Bill Walker's 'Brilliant Strategy' For Encouraging Industry Investment in Alaska
Governor Bill Walker (NGP Photo) has spent a career and millions of OPM (i.e. other people's money) dollars on Quixotic wanderings around the world in failed attempts to make his infeasible visions of an Alaska LNG project economically viable.
See today's comment by our Mid-Atlantic analyst friend on Shell's departure and an earlier, expensive, Alaskan dry hole.
See our additional, 3-1-12 commentary in box below-right. -dh
As a governor, he is now using bullying tactics to achieve his latest vision of an Alaska LNG export project controlled, at least in part, by him.
Not being personally satisfied with the reasonable progress producers are making toward gas pipeline investment decisions, Walker has ordered a special session of the Legislature and is "upping the ante", calling for implementation of a "reserves tax" on natural gas that would, in essence, tax companies for not marketing the gas.
(...as if oil and gas companies do not want to sell their expensively obtained, proven reserves.)
He convened a media gathering on September 25 to discuss the special session and we encourage our critically thinking readers to carefully evaluate the tenor, logic and quality of his interaction with reporters. Also make note of questions reporters did not ask that you would have asked.
On September 25, 2015 -- the same day -- the Legislative Budget and Audit Committee invited a presentation by legislative consultant, Enalytica, on potential impacts of a reserves tax on gas.
The slide presentation results are both logical and predictable and we link the presentation here for you to review and assemble your own conclusions. Aside from the potential impact on a gas pipeline and its potential investors, the Walker reserves tax proposal sends a chilling signal to all potential Alaskan investors.
...from our 3-1-12 Commentary.
"No one objects to reasonable and predictable taxes for the oil industry or anyone else, but a taxing authority, to command respect and encourage investment, should not only seek a fair share for itself but give a fair shake to the taxpayer.
That means predictable tax policy, stable policy, policy that does not discriminate, policy that is never retroactive--unless retroactivity benefits the taxpayer.
A good tax policy would also focus on filling the pipeline, making a sustainable investment climate for our kids; indeed, husbanding our resources as if we were responsible adults who care not just for the need-greed of this generation but for the economic survival of future generations of Alaska's children." -dh
We believe it unassailable that the Walker reserves tax idea sends this signal to those who may be contemplating an investment in Alaska: "You can invest and agree to the rules of the game. But we are a 'sovereign state, by golly,' and if we want we can increase taxes or add new taxes anytime we want--and as in the past we can make those tax changes apply retroactively if we want.
"Be advised: if we spend state money irresponsibly and create a deficit, you have deeper pockets than our citizens, small businesses, the hallowed fishing industry or the tourism industry; accordingly, in such a case we will come after YOU."
This provincial, "think locally not globally" attitude has permeated the thoughts and actions of a loud, vocal minority of Alaskans throughout Walker's pro-oil tax, anti-Canadian pipeline, gasline partner hostility career. This unhealthy, illogical and myopic attitude ignores that Alaska's resources compete with other oil & gas provinces, mostly close to tidewater. Most of Alaska's competitors:
- don't have to construct an 800 mile pipeline to move resources to tidewater, and
- have lower labor costs, and
- are in closer proximity to the markets, and
- operate in friendlier climates, and
- enjoy lower logistical costs
Therefore, Alaska must be EXTRA competitive. In the past, the Prudhoe Bay oilfield saved Alaska from having to act responsibly and be competitive. It was the largest field in North America, prolific beyond imagination and supplied 20% of America's domestic oil demand. In spite of predatory state taxation Prudhoe Bay was profitable.
Alaska now has to learn humility in order to be competitive. Alaska is no longer the biggest oil producing state. It is now 4th, after North Dakota, Texas and California.
Production -- upon which 90% of the state operating budget and over a third of the state economy depends -- continues to decline.
Today, world oil prices are half as high as state revenue forecasters predicted and upon which politicians based their high public spending decisions.
In our columns since Monday, readers have learned much about what Shell's Alaskan Arctic OCS departure portends for the state's undiversified, oil-dependent economy.
One would think that with Alaska's economy teetering on the edge of insolvency (i.e. Scroll down for our commentary since Monday), a prudent Alaskan leader would respond accordingly.
One prudent response would be to kindle dynamic efforts to become attractive to natural resource investors, especially in light of Shell's departure.
But now, our Quixotic champion doubles down on threatening the state's three major investors -- BP, ConocoPhillips and ExxonMobil -- whose presence has sustained Alaska in unprecedented wellbeing for half a century.
He proposes levying a new tax on the three major investors for the gas that is not yet marketable. We believe it's partly because of his actions and words: he is desperate to be a part of -- if not in charge of -- a real, live LNG export project. But his irresponsible industry-hostility is a form of populism which could mobilize some pro-tax citizen sentiment in a state that has not responsibly controlled its lavish public spending.
Throughout life, we have generally avoided the temptation to engage in sarcasm or petty and trite clichés.
But when a person happens into high position and acts contrary to logic, basic courtesy and fairness, critics might with justification refer sarcastically to that behavior as, "brilliant".
And, as to clichés, well, "...if the shoe fits, wear it!"
Yesterday's news about Shell pulling out of its Arctic exploration program could also have some good news for long term oil markets. The USGS had previously estimated that the Arctic contained ~90 billion barrels of recoverable oil - with a goodly part of this being in the US sector. Some recent media reports had quoted this number as being "reserves", whereas they are in fact highly speculative prospective resources.
Given the very very few drilling based data points that this number was based on, Shell's failed Burger J well is likely to significantly downgrade this number - possibly by a number as large as tens of billions of barrels.
Henry Hub gas prices fell yesterday to US$2.59. Expected mild Autumnal weather in the US was the key driver.
Platts has recently reported that Asian spot LNG prices (for delivery in October) are expected to fall again. Mild weather on this side of the Pacific, combined with currently high inventory numbers, is the main causal factor behind the fall. A strong El Nino later this year will only reinforce this.
The interaction of these low Pacific prices with the expected wave of US LNG due to start by the end of this year is unclear. Existing contracted gas purchases will trump spot price economics and the likes of Cheniere should be protected by take or pay contracts for their liquefaction capacity - but the actual volumetric output from the plants (and hence the effect on Henry Hub gas prices) may be less than previously expected.
First ... the dry hole Sohio and BP drilled off-shore of the North Slope of Alaska many years ago. In the link below, others apparently also remember it. Mukluk was one of the mis-steps by Sohio management that finally convinced BP to buy out the minority public interest of Sohio, and replace the management.
This old memory still works (sometimes).
As it is described in the link:
There, in the Beaufort Sea, a consortium of companies invested nearly $1 billion in the 1980s drilling a well named Mukluk.
They were confident they’d find oil. At the time, geologists boasted that it was an incredibly low-risk venture, in part because the formation appeared to mimic the massive Prudhoe Bay oil field on Alaska’s North Slope.
But their bullishness was misplaced. In December 1983, it was revealed the well contained nothing but salt water and traces of long-gone oil.
Decades later geologists armed with new data theorized that the oil actually had been sucked out by BP from an existing site onshore on the North Slope.
For decades, Mukluk has been considered the industry’s most expensive dry hole — a case study in what can go wrong below ground, even when everything else operationally goes right.
Shell’s Burger J well might give it competition.
|See more of yesterday's reports and reactions from U.S. Senator Lisa Murkowski (NGP Photo), various news sources yesterday, more sources today, and our commentary.|
Tuesday's Early Report: In Wake Of Shell's Announcement Yesterday That After $7 Billion Invested and Over A Half Decade of Delay and Disruption Mostly Caused By America's Government, It Is Withdrawing From Arctic OCS Exploration (Statements by Governor Walker (below), Alaska Oil and Gas Association, Consumer Energy Alliance, Congressman Don Young (NGP Photo) via American Energy Alliance. -dh
Yesterday, after absorbing Shell's announcement, Alaska Governor Bill Walker (NGP Photo) said in a statement we received, “I thank the people of Shell for all their hard work on offshore exploration and their strong focus on safety.
We would have said, "...it is a reminder that underscores our need to better cooperate with the oil industry, help it compete in every reasonable way and endeavor to not be an obstacle to industry investment in our state."
Instead, Walker doubles down on being a natural resource dictator. His actions can only lead to less investment, and, troublingly, an effort to socialize and seize ownership of natural resource projects.
How else can the governor's arrogance be explained? -dh
"While the company’s recent announcement is disappointing, it is a reminder that underscores the need for Alaska to drive its own destiny through development of known gas resources, as well as rich oil reserves in a small area of ANWR.
"I contacted the White House this morning to set up meetings to discuss the potential impact of Shell’s decision, as well as Alaska’s need to explore in the 1002 area.”
Alaska Oil and Gas Association President and CEO Kara Moriarty (NGP Photo) on Shell’s announcement
It is a sobering day for Alaska; both in the short and long-term," Moriarty said yesterday.
"Today’s news from Shell is a painful reminder that exploration is expensive, involves huge risk, and does not guarantee success.
Consumer Energy Alliance (CEA) President David Holt (NGP Photo) and CEA-Alaska President Anne Seneca issued the following statement yesterday in response to Shell’s announcement about its exploration activities offshore Alaska:
“Contrary to the previous rhetoric of anti-development activists, the 2015 Chukchi Sea exploration season provides further evidence that drilling can be done safely in the U.S. Arctic offshore. Furthermore, while extremists irresponsibly cheer the decision to put plans for further offshore exploration on hold for now, today’s announcement underscores the need for a more stable and reasonable federal regulatory environment,” said David Holt. “According to the U.S. Department of Energy, more than 63 percent of American energy will come from oil and natural gas by 2040. Finding and developing new resources is in EVERYONE’S interest, especially those Americans who can least afford to pay more for gasoline and electricity.”
According to Holt, “as the Interior Department mulls Arctic offshore drilling regulations and requests for U.S. Arctic lease extensions, and with the 2015 season accompanied by just-in-time permitting and conflicting agency decisions that prevented the drilling of more than one well, the federal government must commit to ensuring a regulatory environment that encourages rather than disincentivizes investment in the exploration of this region. CEA applauds Shell for its dedication to meeting consumer energy needs, as well as its patience with the unwieldy regulatory process and litigation delays over the past seven years and its persistent efforts to explore the potential for the production of American Arctic offshore energy resources.”
“Fossil fuels will be the primary contributor to meeting our energy needs for decades to come. At a time when lower 48 crude oil production is expected to decline over the long term, it is incumbent on federal decision-makers to do everything possible to accommodate the domestic development of these resources, including those in the Arctic.”
“Energy and the environment can and must occur together,” added Anne Seneca. “The environment is very important to Alaskans – and people everywhere. But so is economic opportunity and jobs for this and future generations. Developing our resources is important for our national security and future generations.”
For more information visit Consumer Energy Alliance.
"It would be interesting to know what the results would have been if Shell had been allowed this summer to conduct a multi-well program versus the very limited program of only one exploration well.
"It is now more important than ever for state policymakers and lawmakers to work together to ensure Alaska’s oil and gas industry has a viable future in this state; just like Shell, the companies working in the Cook Inlet and on the North Slope need legal, fiscal, and permitting predictability and consistency in order to make the sizeable investments required to keep the Trans Alaska Pipeline operational for many years.
"Shell’s departure is also a blow for the hundreds of employees who call Alaska home, as well as the many contractors and small businesses that began working on Arctic development as a result of Shell’s $7 billion investment.
"This decision will not halt oil and gas development in the Arctic Ocean, but, as of today, that development will be done by countries other than the United States that lack the stringent environmental standards demanded of industry in the U.S. There are very few companies that could meet these federal requirements and expensive demands, but even large companies with the financial resources like Shell will walk away from mega opportunities when they cannot continue to spend billions of dollars without any promise of a return.
"The Arctic Offshore has rightly been viewed as the next generation of oil and gas development in this state, so for those plans to disappear overnight is beyond painful. It is also a clear reminder about how a state dependent on one industry for 90 percent of its spending needs to look constantly for new developments in oil and gas development.
Moriarty concluded that, "With 27 billion barrels of known oil reserves in the Arctic Offshore, the Outer Continental Shelf was supposed to be Alaska’s next big opportunity.”
For more information visit AOGA.
More reactions keep coming in....
Bloomberg by Paul Barret. After spending $7 billion on a single well ... what?
From Our Mid-Atlantic Energy Analyst friend:
Some of the biggest long-term prospects for providing major oil supplies a decade are disappearing from consideration.
The US Arctic is unlikely to see any further interest for some years to come. It may be that the oil simply is not there in commercial quantities (this writer remembers that Sohio drilled the most expensive dry hole to that time in 1979 from a man-made island off the coast of Alaska), or they simply wanted to preserve capital for less risky plays.
Regardless, this is not the only such regional play, which just a couple of years ago had great prospects, that now appears dead in the water (bad pun). Consider Brazil’s pre-salt plays; even if oil prices had not fallen, Petrobras was going to have real trouble making a success there (this is a whole set of separate columns). We see this play going nowhere the rest of this decade.
We also wrote recently about the North Sea entering into curtailment mode; there will be more shut-downs than new plots drilled. Offshore US is not even mentioned these days.
The Alaskan North Slope is struggling to keep an adequate daily flow of oil for the Alaska pipeline; it is not far from reaching a critical level, and it is certainly not helped by the present price level for oil that does flow. If it cannot stay above about 300,000 bpd, the whole thing faces shutdown and dismantlement. There are others.
The point is, the Megaprojects around the globe are getting long in the tooth, helped along by technology to keep production commercial but old just the same. If the next generation of Megaprojects is delayed by several years each, there will come a time when oil prices will once again be squeezed. It may not come soon enough to give much comfort to today’s producers, but it is coming just the same.
Congressman Don Young:
"I’m sure somewhere Sally Jewell and President Obama are smiling and celebrating Shell’s decision to cease operations off the coast of Alaska. For Alaskans, this announcement is a major blow to our local communities, the future of Alaska’s economy, and the Trans Alaska Pipeline. Make no mistake, this decision is the result of the Administration’s narrow-minded approach to responsible resource development – putting large areas off limits, while building insurmountable new hurdles to use areas that have been leased.”
See Our Aussie Energy Expert's Current View On Alaska's Energy 'Leadership'
ADN/AP Shell Announcement by Dan Joling/Yereth Rosen
Our Commentary On Shell's Alaskan Arctic OCS Exit
With Alaska's "Plan B" failing what's wrong with relying again on "Plan A"?
Alaskans will be seriously questioning the future of their state when they wake up and read the news this morning.
This is because Alaska is more than any other North American state or province dependent on oil production and production is down, down, down.
Alaska North Slope (ANS) production once fed about 20% of domestic oil supply at a rate in the '80s that exceeded 2 million barrels per day.
The Trans Alaska Pipeline System (TAPS) transporting that oil is about 40 years old now and -- as important as it still is -- it is merely a reflection of its former, vigorous self, losing about 5% of its throughput every year as ANS field production declines. It's nearly 3/4 empty and without added production could shut down in a few years.
Shell's success could have helped sustain Alaska's job economy and ANS throughput in TAPS.
Alaska depends upon taxes and royalties from oil flowing through TAPS for almost 90% of its lavish state operating budget.
Recent statistics label it the highest per capita spending state in the nation and the highest per capita debtor state in the nation. It has the highest number of non-profit corporations in the country per capita, most of which are directly or indirectly dependent on oil for at least part of their budgets.
Available state savings accounts currently protect a $3.5 - 4 billion annual operating deficit, but that savings will be gone in a year or two. Even a return to $100/barrel oil would not put Alaska in the black based on current production and state spending trends.
In addition, over a third of the 49th State's total economy depends on oil revenue and oil-dependent jobs.
With falling production and increased opposition to oil operations both within and from outside Alaska, state policy has drifted aimlessly for many years.
It has pretty much been a policy of tax oil and spend that oil money while minimizing taxes/fees on people and maximizing transfers of state wealth to them.
"Plan A" first began to surface in the mid-1980s when various business groups began advocating for a constitutional amendment limiting government spending via a population and inflation formula.
By the early 1990s the University of Alaska's Institute of Social and Economic Research (ISER) began showing the public and elected leaders how very modest spending controls THEN could have provided a "safe" and sustainable glide path toward a long-term, sustainable economy for current and future generations.
ISER has provided another path to sustainability (i.e. "Maximum Sustainable Yield") for the last few years, also largely ignored.
Neither an effective constitutional spending limit nor economically viable "safe economic landing" were embraced by those holding the purse strings and whose pleasure and reelection were sustained by taxing oil and spending on constituent desires. (Note: Civic groups did succeed passing, in 1982, an amendment, but lawmakers loosened it to allow capital project designations, among others, to weaken the stricter "population and inflation" formula. (Alaska Constitution, Article IX, Sec. 16)
With oil income falling and spending continuing to increase over the years, even the most deluded politicians could see that "something should be done".
We call that "something" the strategy of hope, which took four forms:
a. Hope that the 1980 Alaska National Interest Lands Conservation Act's congressionally authorized "1002" area within the Arctic National Wildlife Range (ANWR) would be successfully developed, contributing to TAPS throughput, jobs and economic stability; and
b. Hope that sufficient new oil would be found in the National Petroleum Reserve Alaska to maintain robust throughput of TAPS, state economic stability and jobs; and
c. Hope that sufficient new oil would be found within existing Alaska North Slope fields and other state lands to maintain robust throughput of TAPS, jobs and state economic stability; and
d. Hope that sufficient new oil would be found in the Alaskan Arctic OCS to maintain robust throughput of TAPS, jobs and state economic stability.
And wouldn't it have been nice if all four hoped-four outcomes had materialized?
How has the strategy of hope worked out for Alaska?
Well, the State has continued its upward spending and taxing trend, somewhat ameliorated by an oil tax reform law two years ago, but continually challenged by liberal lawmakers and their constituencies since then.
The president is operating the federally owned land in ANWR as if it were a wilderness area -- part of his end run around Congress using the 'pen and a phone' tactic.
The president's Bureau of Land Management (BLM) has promulgated regulations that effectively 'lock up' half of the National Petroleum Reserve Alaska (NPR-A). Together with other regulatory agencies like the EPA, BLM has also significantly delayed and increased the expense of new oil production in areas of NPR-A that are open to exploration and development.
The current Governor is raising the old Palin flag of populism and anti-oil rhetoric, threatening the oil industry, endangering a pending LNG project, and signaling investors that investment even in existing oil fields -- and other state lands -- is accompanied by a high risk premium. Some even believe that the objective of the current governor is to socialize the energy industry (Our notes, here and here).
Now, on top of these first three disappointing Plan B results comes Shell's decision based, in part, on a hostile, federal regulatory regime.
Plan A -- involving support for Alaska's major industry and spending discipline -- didn't work out when the Plan B strategy of hope offered the above 4 lifelines.
Now that the reality is setting in that there is so little hope for the strategy of hope, Alaska may be forced to reconsider the best approach of all: the original Plan A.
Plan A has the negative qualities of being distasteful to big public spending and high oil taxing constituencies.
It requires citizens to 'do without' certain government amenities.
It requires lawmakers and the governor to seek the high road, be the adults in the room and prepare a sustainable economy for the next generation. This includes fighting the hostile and debilitating overreach of the federal government.
But Plan A has the major benefit of preventing intergenerational inequity, of providing a sustainable economy for Alaska's children rather than robbing their generation to secure the selfish wants of this generation.
Keep watching. We'll know the political class for what it is after absorbing today's news.
Will politicians embrace Plan A along with the dedication and self discipline it requires?
Or, will they do everything to avoid political pain at the expense of the next generation (i.e. as the federal government has done), perhaps by constructing a Plan C that is no more responsible than Plan B's strategy of hope?
Royal Dutch Shell will cease exploration in Arctic waters off Alaska's coast following disappointing results from an exploratory well backed by billions in investment and years of work
Shell has spent upward of $7 billion on Arctic offshore exploration, including $2.1 billion in 2008 for leases in the Chukchi Sea off Alaska's northwest coast, where an exploratory well about 80 miles off shore drilled to 6,800 feet but yielded disappointing results.
"Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S.," Marvin Odum, president of Shell USA, said in The Hague, Netherlands. "However, this is a clearly disappointing exploration outcome for this part of the basin."
Shell will end exploration off Alaska "for the foreseeable future," the company said, because of the well results and because of the "challenging and unpredictable federal regulatory environment in offshore Alaska. (Our emphasis added. -dh)
The Burger J well drilled this summer will be plugged and abandoned, Shell spokeswoman Megan Baldino said.
Other references will be added here:
- Wall Street Journal
- Greenpeace's "Great News"
- Alaska Oil & Gas Association
- Consumer Energy Alliance
Alaska's LNG Prospects
Today, our Aussie oil and gas analyst friend wrote:
Further to the news story on Friday about the sovereign risks facing LNG projects even in the USA, such as Alaska LNG (AKLNG) - Alaska's populist Governor has subsequently formally introduced a concept that no doubt will look attractive to his peers in Mozambique, Tanzania, etc - a "gas reserves tax".
The intent of this concept is to tax resources in the ground, thereby presumably encouraging oil companies to develop assets.
The concept shows a fundamental lack of understanding as to what are "reserves" - which seems surprising for a State which is built on the oil industry.
Although Alaska's North Slope contains very substantial and well understood contingent resources of gas - it contains no gas reserves and will not do so until AKLNG reaches FID (i.e. reserves require commerciality).
By seeking to tax in-ground resources, Alaska's Governor reduces the chances of such resources actually becoming (commercially available) reserves.
Free subscription to Aussie Oil & Gas Observer
September 25, 2015
Regular readers will know that this blog considers the Alaska LNG (AKLNG) project to be the Aesopian tortoise of the LNG project world – not as flashy as some, but plodding towards first gas next decade.
However, that tortoise carries a heavy shell that would be familiar to LNG project proponents in most locations around the world – a Government that wants to maximize its share of something that does not as yet exist – and therefore risks getting a larger share in nothing rather than a reasonable share in something.
Australian readers of this blog will likely be familiar with only one Alaskan Governor – the surprisingly socialist (when it comes to taxing oil companies) Sarah Palin. Her populist instincts live on in the State and even the Russian news service Interfax today points out that AKLNG risks being bogged down by politics
Alaskan based website Northern Gas Pipelines today provides an update on the latest Government meddling in AKLNG and asks the reasonable question – “with so many government cooks in the LNG kitchen, really, what could possibly go wrong?”
SitNews, Ketchikan, Alaska, by Mary Kauffman
Alaska Governor Bill Walker issued a proclamation Thursday calling the Alaska Legislature into a special session next month to consider legislation to move a project forward to get the natural gas on the North Slope to market. Efforts to to commercialize North Slope gas dates back to the 1970s.
Addressing what the Governor describes as the urgency of North Slope gas production, Walker called the special session to be held in Juneau on October 24th.
“With a $3.5 billion budget deficit, this gasline project has gone from a wish-list item to a must-have,” said Governor Walker. “Under the negotiation process I inherited, very little has been accomplished on the commercial agreements. It is time to make the necessary legislative changes so a single party cannot delay the production of Alaska’s natural gas resources and sway our destiny.”
Senator Lisa Murkowski's reaction to Shell's announcement
U.S. Sen. Lisa Murkowski, R-Alaska, today released the following statement regarding Shell’s decision to suspend operations in Alaska’s offshore waters:
“I am extremely disappointed by this decision, just as I have been deeply frustrated by the years-long path that led to it.
“In the more than seven years that Shell has held leases in the Chukchi, it has only recently been allowed to complete a single well. What we have here is a case in which a company’s commercial efforts could not overcome a burdensome and often contradictory regulatory environment. The Interior Department has made no effort to extend lease terms, as recommended by the National Petroleum Council. Instead, Interior placed significant limits on this season’s activities, which resulted in a drilling rig sitting idle, and is widely expected to issue additional regulations in the coming weeks that will make it even harder to drill. Add this all up, and it is clear that the federal regulatory environment – uncertain, everchanging, and continuing to deteriorate – was a significant factor in Shell’s decision.
“What we need – but still do not have – is a predictable and sensible regulatory system both onshore and offshore that encourages companies to make major investments in our future. Continued uncertainty will only further damage our competitiveness and our economy. And so today, I call on the administration to work with Alaskans – to develop a legitimate plan, driven by our input and preferences, to ensure the prolific resources in our federal areas are produced.
“There are many steps that can be taken, if the Interior Department and others commit to working with us. We must enable the sanctioning of GMT-1 and further development in NPR-A, rapidly progress Liberty and open new areas in the nearshore Beaufort Sea, extend offshore lease terms, conduct Lease Sale 237 as scheduled, finalize a strong Five-Year Plan for 2017-2022, provide for offshore revenue sharing, and expedite leasing throughout the state – including the non-wilderness portion of ANWR.
“There is also more at stake here than the current status of one company’s exploration program. Development in the Arctic is going to happen – if not here, then in Russia and Canada, and by non-Arctic nations. I personally believe that America should lead the way. The Arctic is crucial to our entire nation’s future, and we can no longer rely solely on private companies to bring investments in science and infrastructure to the region. As the Arctic continues to open, we urgently need to accelerate our national security investments in icebreakers, ports, and other necessities.” (See the source here.)
TODAY'S RELEVANT CONSUMER ENERGY ALLIANCE ENERGY CLIPS:
Southeast Green: PACE Says EPA's Clean Power Plan Would Raise Consumer Costs, Yet Fail to Lower Earth's Temperature
The Partnership for Affordable Clean Energy (PACE) issued a statement today that criticized the Environmental Protection Agency's unprecedented mandate on carbon dioxide emissions under its Clean Air Plan, especially the change to demand more reductions by 2030.
DC City Biz List: Offshore Drilling Could Boost The Economy Or Be An Unnecessary Risk
Drilling for oil the coast of Virginia is either a chance to boost the economy or an unnecessary risk for beachfront communities and the environment. Voices on both sides of the argument were in Richmond on Thursday for a forum hosted by the Consumer Energy Alliance.
Consumer Energy Alliance: CEA Leads Discussion on the Need for Responsible Atlantic Offshore Energy Development
Consumer Energy Alliance today hosted the 2015 Atlantic Energy Forum in Richmond, Virginia, featuring Abigail Ross Hopper, Director of the Bureau of Ocean Energy Management and other distinguished panelists.
New York Times: Shell Abandons Disappointing Offshore Alaskan Well
Royal Dutch Shell said Monday that it would stop exploration off the coast of Alaska “for the foreseeable future.” The decision came after the Burger J well, which the company drilled this summer, produced disappointing results. The company said the well had “found indications of oil and gas, but these are not sufficient to warrant further exploration” of the Burger prospect, a geological structure.
The Hill: Senate Dems tell Obama to end Arctic drilling
Some Senate Democrats are once again asking President Obama to end oil and natural gas drilling in the Arctic Ocean. In a letter Friday, 12 senators asked Obama to block any additional drilling after Royal Dutch Shell wraps up its exploratory drilling in the Chukchi Sea, northwest of Alaska, this fall.
The Hill: Clinton explains shift on Keystone, other key issues
Hillary Clinton on Sunday pointed to the nation’s shifting energy profile for her opposition to the Keystone XL pipeline after she had initially seemed to voice support for its construction. In an interview on NBC’s “Meet the Press,” Chuck Todd asked Clinton if her position on Keystone had changed as a matter of political expediency.
Post and Courier: Hillary’s slick move on XL pipeline
Hillary Clinton continued her unimpeded march toward the Democratic presidential nomination for 2016 by announcing her opposition to the Keystone XL pipeline. In doing so, she checked another box on her campaign strategy list, reassuring some core Democratic voters and probably ensuring some large campaign contributions.
The Hill: Energy empowers the world’s poor
The White House, the United Nations, even the Vatican are in full court press for action to reduce manmade global warming at the climate summit in December. Many well-intentioned people believe manmade global warming is so dangerous we should spend trillions trying to prevent it by reducing emissions of carbon dioxide (CO2), which would require tremendous reductions in fossil fuel use.
Fortune: Why America’s power grid needs natural gas now more than ever
Now that the Obama administration has finalized its Clean Power Plan regulating greenhouse gas (GHG) emissions from the power sector, the focus of attention turns to the states, which must now find a way to reduce emissions consistent with the Plan. One question states face as they envision a lower carbon future is how much to rely on natural gas-fired generation.
Washington Examiner: House sets vote to lift oil export ban
The House is set to consider a bill on the floor this week to lift a 40-year-old ban on exporting crude oil from the United States. The bill is being supported by the House leadership as integral to the Republican energy agenda this Congress, and many high-level lawmakers have vowed to see it passed before the end of the year.
Bloomberg: Oil Traders May Look to the Sea for Profit Amid Price Collapse
The global oil glut may soon expand to the ocean. While traders are already cashing in on the surplus by housing oil in onshore tanks across the globe -- including on the tiny Caribbean island of St. Lucia-- expanding the storage to tankers at sea may near a point where it becomes profitable, according to Citigroup Inc., Goldman Sachs Group Inc. and IHS Maritime & Trade.
Associated Press: Alaska’s Walker brushes aside reserves tax criticism
Gov. Bill Walker on Friday brushed aside criticism from Republican lawmakers that they were blindsided by his call to reinstate the gas reserves tax during the upcoming special session. “I sat right at this table and talked about fiscal certainty and project certainty,” Walker said during a news conference at his Anchorage office. He met with lawmakersMonday to inform them of his call for the special session, which starts Oct. 24 in Juneau.
Alaska Highway News: Despite fracking fights, resource extraction key for Peace Region, says NDP candidate
When Kathi Dickie was considering whether to run for parliament as a New Democrat in Northeast B.C., one question was on the top of her mind. "My question to the NDP was if you're against development of our natural resources, then I'm not your candidate," Dickie told the party brass.
Beaumont Enterprise: Keystone XL Pipeline needs market decision
Democratic presidential candidate Hillary Clinton came out against the Keystone XL Pipeline last week, a decision that will have an impact on the 2016 race. And Southeast Texas, because the Valero refinery in Port Arthur would process 150,000 barrels a day of tar sands crude from Canada - if it ever gets here.
Midland Reporter-Telegram: Government agency plans intensive safety study - Two-year project targets all aspects of oil and gas industry
High salaries and soaring numbers of new jobs were not the only things attracting attention as the oil and gas industry boomed in recent years. Industry fatality, injury and exposure rates drew focus, especially from the National Institute for Occupational Safety and Health, part of the Centers for Disease Control and Prevention.
Fuel Fix: California regulators restore emissions-cutting fuel rule
California regulators on Friday restored ambitious rules to cut transportation fuel emissions 10 percent within 5 years. The rules further strengthen California’s toughest-in-the-nation carbon emissions standards, but oil producers warn the changes could drive up costs for consumers at the gas pump.
Denver Post: Colorado oil companies say they are safer, stats say otherwise
The country's oil and gas companies say they are cooperating more and working harder to make jobs safer for employees even as a new report suggests oil-field work has never been more dangerous. The industry touts the rise of training networks, partnerships with governments and tough certification standards as helping to improve the work environment in one of the most dangerous jobs in the country.
Fuel Fix: Pro-industry group throws support behind drilling on Texas university land
A pro-industry group is firing back at calls by environmental advocates to restrict drilling on university land in Texas, arguing that oil and gas revenue has provided massive financial support for the University of Texas and Texas A&M.
Houston Chronicle: Community colleges offer training for petrochem jobs
Petrochemical plants along the Texas Gulf Coast and the Port of Houston are spending billions of dollars to expand facilities. It is estimated that these projects, along with the retirement of existing workers, will provide jobs for more than 50,000 skilled workers.
Austin American-Statesman: Houser: Concerns about fracking on UT land overstated
University Lands, which comprises about 2.1 million acres of land in West Texas, is a resource unlike any other in the nation. The lands were set aside in 1839 specifically to benefit Texas higher education. Today, more than 20 academic and health institutions in the University of Texas and Texas A&M systems benefit from these assets.
Baton Rouge Advocate: Our Views: New roles for natural gas, including on the road, will help Louisiana’s growing natural gas industry
The price of oil is sharply down from last year, but if there’s one thing Louisiana has still got, it’s lots of natural gas at a historically low price level. That is of course good news for the metropolitan areas of the state, including big refineries in Baton Rouge and Lake Charles and in the River Parishes above New Orleans.
Columbus Dispatch: Oil, gas industry boosts local economy
There is no question, these are tough times for Ohio’s oil and gas industry. Prices for crude oil and natural gas are at their lowest levels in decades. The downturn in prices and drilling activity has caused many people to ask questions: Is Ohio’s oil and gas industry still a major contributor to our local economy? How important is this industry to the average Ohioan? The answers are yes, and, in fact, more important now than ever.
Washington Times: GOP will allow tax vote, if Democrats secure enough support
Leaders of the Pennsylvania Legislature’s Republican majorities will allow a floor vote on a budget package that includes an income or sales tax increase if Democrats can secure enough support to pass it, officials said Friday.
Tribune-Review: 2 Marcellus pipeline projects move forward
Two large pipeline projects aimed at easing a glut of natural gas from the Marcellus shale advanced in the federal permitting process this week. Houston-based Columbia Pipeline Group said its proposal to build the $2 billion, 165-mile Mountaineer Xpress in West Virginia entered a pre-filing phase before the Federal Energy Regulatory Commission.
WKBN: Judge tosses Pa. landowners’ lawsuit against fracking opponents
A judge has dismissed a lawsuit that landowners filed against people and groups who oppose fracking in a western Pennsylvania township. Natural gas drilling has been delayed in Middlesex, Butler County while some of the rural community’s 800 residents challenge a zoning ordinance that would allow drilling in 90 percent of the rural township.
Myrtle Beach Sun News: Offshore Wind a Viable Source for Future Electrical Energy
It’s evident, or should be, that electrical energy in the future will come from sources other than fossil fuels such as coal, oil or even natural gas. Offshore winds are one of the most viable alternate energy sources and coastal South Carolina residents should applaud ongoing efforts to produce power from the wind.
|Petroleum News. With Premier Christy Clark at the helm, the British Columbia government entered a two-day summit on Sept. 9 with about 500 First Nations leaders hoping to bridge the chasm on future economic, social and legal relations.|
Alert: Alaskans Concerned about a nearly 50% gap between state income and spending should attend Tomorrow's Forum On Alaska's Fiscal and Economic Future! Here's the program and here's how to watch live. For additional reference, here's a Rasmuson Foundation state fiscal policy poll.
(Commentary: Alaska's elected leaders have been unwilling/unable to match limitless wants with limited cash.
Their solution has been to avoid spending cuts and constituent rage by filling deficits with savings.
Now the easily available savings are almost gone; the annual deficit increases along with low oil prices; oil royalties and taxes are not matching increased spending; and, an unfunded state employee pension liability exceeds the size of the state budget.
Ironically, the recent passage of oil tax reform has led to big energy investments which could assist Alaska in propping up its fiscal house, in the long term. Reform legislation also contained tax incentives for energy that are good for the long run but jeopardize short term budget balancing.
Accordingly, investors -- along with the three credit rating agencies -- will be assessing the state's credit worthiness and its ability to protect current and future investments from the risk of predatory taxes in absence of effective spending reforms.
Meanwhile, Alaska's governor and several legislators have further diminished Alaska's attractiveness to investors. They have done this by continuing to raise the the possibility of creating new industry taxes.
When less income begets higher taxes, which begets lower income, leading to higher taxes, a condition is created which economists refer to as an economic "death spiral".
Beware, Alaska for the long-anticipated time of truth now hovers at your doorstep. -dh)
News Miner by Jeff Richardson. University of Alaska President Jim Johnsen presented an ambitious budget plan to the UA Board of Regents on Thursday, but said he’s approaching state funding with “a sense of realism” amid a tight spending environment.
Governor Bill Walker on Thursday continued to expound upon the benefits of Alaska’s liquefied natural gas potential in meetings with Japan’s top energy executives and officials, who had all attended Wednesday’s LNG Producer-Consumer Conference opening ceremony.
|Alaska Journal of Commerce by Tim Bradner. In a gloomy assessment of the negotiations, Dan Fauske (NGP Photo), CEO of the state - owned Alaska Gasline Development Corp, told a combined meeting of the House and Senate Resources committees that, “The state (negotiating) team is very concerned about the lack of progress on many of the key commercial and fiscal issues.”
“When it comes to trade, Japan and Korea are our closest neighbors,” Governor Walker said. “Their populations provide the large consumer base Alaska needs to export our abundant supply of natural gas.”
Governor Walker and his team met with the president of JERA Co., Inc., which was established in April when Tokyo Electric Power and Chubu Electric Power companies formed a joint marketing venture to focus on developing new energy upstream investments and fuel procurement.
“I was touched and impressed by your enthusiasm and passion for Alaska,” said JERA President Yuji Kakimi of Governor Walker’s Wednesday speech at the LNG Producer-Consumer Conference. “Alaska seems like a promising candidate for sourcing LNG.” More....
Petroleum News. Sen. Pete Kelly steadfastly defended funding the tax credits....
Journal of Commerce by Tim Bradner. The president of the state-own gas development corporation told state legislators Sept. 9 that Gov. Bill Walker is unlikely to call a special legislative session to ratify Alaska LNG Project agreements unless progress is made quickly on several key issues.
Walker must issue a call for a special session 30 days in advance and the clock is ticking on that deadline for a special session in mid-to-late October, which had been the governor’s hope.
No agreement on the key outstanding issues were announced as of Sept. 15.
In a gloomy assessment of the negotiations, Dan Fauske (NGP Photo), CEO of the state-owned Alaska Gasline Development Corp, told a combined meeting of the House and Senate Resources committees that, “The state (negotiating) team is very concerned about the lack of progress on many of the key commercial and fiscal issues.” More...
Governor Walker Draws Praise From Japan’s Top Energy Executives
Governor Walker wraps up fourth day of week-long meetings touting Alaska’s LNG potential
September 17, 2015 TOKYO—Governor Bill Walker on Thursday continued to expound upon the benefits of Alaska’s liquefied natural gas potential in meetings with Japan’s top energy executives and officials, who had all attended Wednesday’s LNG Producer-Consumer Conference opening ceremony.
“When it comes to trade, Japan and Korea are our closest neighbors,” Governor Walker said. “Their populations provide the large consumer base Alaska needs to export our abundant supply of natural gas.”
Governor Walker and his team met with the president of JERA Co., Inc., which was established in April when Tokyo Electric Power and Chubu Electric Power companies formed a joint marketing venture to focus on developing new energy upstream investments and fuel procurement.
“I was touched and impressed by your enthusiasm and passion for Alaska,” said JERA President Yuji Kakimi of Governor Walker’s Wednesday speech at the LNG Producer-Consumer Conference. “Alaska seems like a promising candidate for sourcing LNG.”
Governor Walker and his team also met with the chairman and president of LNG Japan Corporation, an energy trading house.
“After the Great East Japan Earthquake, the role of LNG has become even more important to supply the power demand of our country,” said LNG Japan Corporation President Norikazu Onishi. “Japanese companies have the capacity to purchase from the United States.”
Mitsui & Company executives told Governor Walker, Department of Natural Resources Deputy Commissioner Marty Rutherford and Alaska Gas Team General Manager Audie Setters of the LNG export terminal they and a consortium of companies built in Cameron, Louisiana.
“But exporting LNG from the Gulf Coast to East Asia takes up to 26 days,” said Naoshi Kanzaki, Mitsui’s General Manager of Natural Gas. “It would be a much shorter time to export from Alaska.”
Governor Walker told Mitsui executives shipping LNG from Alaska to Japan would take seven days.
Governor Walker and his team also met with top executives of Japan Bank for International Cooperation (JBIC), a public financial institution that provides energy investment funding for Japanese companies.
“I’m confident your passion for Alaska will produce a project,” said JBIC Chief Operating Officer Koichi Yajima, who had also heard Governor Walker’s Wednesday speech. “Alaska can be a stable provider of LNG for Japan.”
Governor Walker also met in Tokyo with ExxonMobil executives: Rob Franklin, President of Gas & Power Marketing; Stephen Wong, President of Greater China/Japan Gas Marketing; and Tetsuro Takano, General Manager of LNG Market Development in Japan. Governor Walker also met with Hiroshi Imura, ConocoPhillips Japan President and Yoshiaki Nakazato, President of Sumitomo Metal Mining, which owns Pogo Gold Mine in Alaska.
Governor Walker and his team will wrap up their weeklong series of meetings Friday with Hyogo Governor Toshizo Ido and top executives of Osaka Gas and Kansai Electric Power Company. He and his team will also tour Osaka Gas Senboku LNG Terminal.
Attached: Photos of Governor Walker meeting with the President of JERA Co., Inc., LNG Japan Corporation, Mitsui, and Japan Bank for International Cooperation (JBIC).
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.