BP today announced its intention to establish a separate business to manage its onshore oil and gas assets in the US Lower 48.
Comment: Yesterday we noted that two legislators are planning for a new oil revenue stream should voters adopt an August Primary Ballot proposition to repeal oil tax reform.
That revenue stream will be based on a new policy emphasis on state investment and equity into oil and gas exploration and development projects. These are the same minority legislators who are leading an effort to repeal the SB21 oil tax reform bill passed by a majority of the House and Senate, and signed by the Governor, less than a year ago.
We can now see a strategy rising from the mist: repeal of tax reform will have to be replaced by something that produces revenue. Since repeal of reform will deflect investment, an unhappy but obvious policy replacement would be to socialize/nationalize natural resource industries...starting with the small step of massive equity investment of public funds and employment of state employees to oversee the profitability of the investments.
What could possibly go wrong?
Today, we hear in a Fairbanks News Miner editorial, that certain Mayors who reap large and mostly passive benefits from the oil and gas statewide property tax, are mounting an effort to investigate impact on their revenues from an agreement between the state and gas pipeline parties regarding the fiscal regime enabling a gas pipeline project to proceed.
Certain gubernatorial candidates oppose both oil tax reform and the fiscal terms surrounding a gas pipeline project.
The current governor supports both tax reform and the proposed gas pipeline fiscal regime.
While there seems to be alignment among major gas pipeline and oil tax stakeholders, lack of political alignment from other, vocal influence leaders could well cause oil tax reform to disappear after August, soon to be replaced by new statewide leadership and a new world of natural resource control by bureaucrats and government ownership of the 'means of production'.
Should this be the outcome, we can envision great impact, as well, on Alaska's entire investment climate, not merely limited to natural resource investors. -dh
Comment: Fox News interviewed former Alaska Governor Sarah Palin (NGP Photo) today.
During the interview, we learned that Candidate Obama opposed Candidate Romney's conviction that Russia posed a global threat to peace.
The program also produced a video of Candidate Sarah Palin, earlier warning that just as Russia invaded Georgia it could as easily invade Ukraine.
Throughout the interview, Palin emphasized the importance of approving the Keystone XL pipeline and developing domestic energy resources with Administration support--rather than Administration opposition.
Our faithful readers know that we have been hard on Palin for her Alaska oil tax and gas pipeline policies nearly a decade ago...but in this interview we found ourselves appreciating her message, which we paraphrase: "Develop America's resources aggressively and responsibly now, Mr. Obama, or watch our standing in the world and support for our allies diminish along with our national security and economic recovery."
We also note from the current issue of Petroleum News, that "Commissioner John Norman (NGP Photo) retired from the Alaska Oil and Gas Conservation Commission at the end of January. Norman, an attorney, had been the public member of the commission for 10 years. He was named to the commission by former Gov. Frank Murkowski in 2004, replacing Sarah Palin as the public mem...." (We are reminded once again of what a small world it is as we congratulate Governor Palin on her stand for domestic energy production and her replacement, Commissioner Norman, for a lifetime of service to the state and nation. -dh
Wall Street Journal by James Freeman
WARREN BUFFETT, CLIMATE-CHANGE DENIER
The billionaire chairman of Berkshire Hathaway (Photo, Buffett with NGP Publisher) is on some kind of roll. Yesterday we told you about his warning on public pension funds in his annual letter to shareholders. Now, he's puncturing deeply-held liberal myths about global warming. Mr. Buffett tells CNBC that extreme weather events are not becoming more common, and that climate change is not altering his company's calculations when insuring against catastrophic weather events. "The public has the impression that because there's been so much talk about climate that events of the last 10 years from an insured standpoint and climate have been unusual," he said. "The answer is they haven't." (We commented on the subject of climate change two days ago, invoking Aristotle's Golden Mean ideal; and we challenged both sides of the debate). -dh
Comment and link: We earlier commented on LNG competition.
Here, Peter Tertzakian of the Globe and Mail gives further insight on the softening LNG market for British Columbia exports. Are not some of Canada's LNG export concerns ones that we Alaskans share. In both Alaska's land Canada's cases, LNG market demand and competition are exacerbated by local political interests striving to obtain for themselves and their constituencies all possible benefits -- even if the end result is achieving 100% success in gaining benefits for projects that became embroiled and then doomed in a sea of local and national political struggles.
To quote our reference at the Globe and Mail: Japanese benchmark prices for LNG in Asia have been exceptionally high since the Fukushima nuclear disaster, almost exactly three years ago. Concurrently, domestic Canadian natural gas prices have been anomalously low. The resulting “differential” between the two was $15.70 (U.S.) for one million British thermal units (MMBtu) at its widest in July, 2012. It’s been that massive price gap, or arbitrage, that triggered the buy-low-sell-high opportunity to build LNG export facilities in North America, including 14 projects off the west coast of B.C.
Alliance Profile: M-I SWACO a Schlumberger Company: From Drilling through Production, Focused on our Customers
Alaska LNG Project Faces Market Challenges...And Political Challenges
Alaska and Mackenzie Delta producers are eyeing LNG exports to Asia as this generation's best option for monetizing Arctic gas.
Previous generations were close: with the Arctic Gas project in the 1970s (i.e. including TransCanada); displaced by the Alcan project in the 1980s (i.e. vigorously opposed by TransCanada); and the Alaska Highway gas pipeline project given new life with higher gas prices and passage of the Alaska Natural Gas Pipeline Act of 2004 (i.e. led by TransCanada).
Evolution of Arctic gas projects continued with Governor Sarah Palin's (NGP Photo) support of the Alaska Gasline Inducement Act (AGIA, 2007), giving a subsidy to TransCanada just as the great North American shale gas phenomenon began eliminating that market for expensive, Arctic energy.
However, with subsequent support from the Legislature and Governor Sean Parnell (NGP Photo), TransCanada's project evolved into a duet consortium with ExxonMobil, and more recently achieved significant alignment of interests with the State's Administration, Legislature and other producers.
Meanwhile, the state's operating budget is increasingly unsustainable, depending as it does on drawing down savings accounts in response to its 90% dependence on diminishing oil production.
With the Obama Administration seemingly doing everything possible to prevent oil, gas and mining activity on federal AND state lands (i.e. Readers are welcome to challenge us on this accusation and we will be happy to document it), Alaska's economic prospects are at further risk.
To add to the lack of optimism, in a diminishing oil production environment, a coalition of minority activist and anti-business groups is promoting repeal of Alaska's oil tax reform law (See yesterday's commentary)--though the majority of Alaska's private sector leaders oppose repeal.
The Senate Bill 21 reform effort was passed into law less than a year ago after years of analysis and debate about how to increase investment and natural resource production, royalties and taxes. Repealing SB 21 would send a dramatic signal to the investment world that in Alaska, "A deal is not a deal".
Now, the state's economic hopes are focused like a falcon's gaze on hopes for a gas pipeline and LNG export project whose prime market would be Asian consumers.
However, just as changing domestic gas markets over the last 45 years have killed hopes and plans for monetizing the huge Arctic gas reserves, so now do the furies appear to be conspiring against Alaska's export hopes.
In Canada, a number of LNG projects have been approved or are in mature permitting stages -- by a supportive federal government -- and seem to be mostly targeting Asian markets.
Even though Japan's Fukushima tragedy resulted in more demand for LNG, Japan is also considering lower cost coal as a competitive alternative, which diminishes consumer appetite for more expensive LNG imports. We note that Japan has been one of the most prospective markets for Arctic gas.
Meanwhile, members of Congress who have studied the issue are telling the Administration that unless the Department of Energy increases the approval rate -- and decreases the backlog -- of LNG project applications, markets could be lost to other energy sources.
The Department of Energy's LNG export function -- under direction of Assistant Secretary for Fossil Energy, Christopher Smith (NGP Photo) -- seems to be increasing its approval activity.
|Fuel Fix. Oil industry and business groups have formed a new coalition to make the case for expanded exports of American natural gas.
The “Our Energy Moment” campaign, which is described as a grassroots organization, aims to counter the arguments of export foes, as the Obama administration weighs applications to widely sell liquefied natural gas overseas.
An increased approval rate for Canadian and Lower 48 LNG projects is certainly good for North American economies.
Logically, a larger number of LNG exporters means more competition for an Alaska project.
Most projects will be attempting to secure long term supply contracts with utilities and/or large industrial users. As those markets become satisfied with the growing number of current LNG projects, Alaska North Slope and Mackenzie Delta gas will surely have a more challenging time -- as later comers -- elbowing their way into market niches that will pay top dollar for long term contracts.
We suspect that one saving grace of current Arctic gas projects is the high degree of expertise focused on their successful outcome. In particular, we note that many if not most of the Alaskan and Mackenzie Delta producers have LNG experience and some affiliated interests with each other and even with Canadian west coast and Lower 48 LNG exporters.
Where does this leave Alaskan citizens and investors?
- In six months, Alaskans will vote on whether to stabilize or destabilize their investment climate. Depending on the referendum's outcome, we can envision either massive new investment in the state or massive withdrawals of capital investment plans, over time.
- If the August plebiscite favors investment, we can envision all parties attempting to fast track gas pipeline timetables. If the vote repeals tax reform, we see a gloomy end to this generation's plans for monetizing Alaska gas.
- In the next three years, the Obama Administration will either ease up on Alaska or continue its nearly perfect record of opposing, slowing and/or stopping every major development they can in the state. If projects can be sanctioned under the federal assault, more oil and gas can contribute to a sustainable economy. If federal pressures continue and even increase, prospects for more oil, gas and mining production are limited.
In conclusion, we cannot overstate the importance of the August referendum vote on whether to repeal Senate Bill 21.
This is because repeal of SB 21 would recreate an investment climate that has minimized what could have been sufficient investment to stabilize if not reverse waning, North Slope oil production.
As we have demonstrated above, Arctic gas LNG projects will have a challenging enough time finding a market niche even in the best of circumstances. But repeal of SB 21 will, in our view, totally emasculate the investment climate along with plans for a gas pipeline.
We would also offer this additional perspective on the highly lauded, state financed, in-state gas pipeline project, under control of the Alaska Gasline Development Corporation. That project was designed to meet growing demand for natural gas as a heating and power supply for the majority of Alaska's population.
But with 90% of the state budget depending on oil production -- along with a third of Alaska's economy -- repeal of SB 21 would result in growing job losses and a massive, lemming-like out-migration of citizens from the state over the next five years.
In such circumstances, existing natural gas supplies will be more than sufficient to supply the survivors without the need for or expense of a new, in-state gas pipeline.
Finally, we invite those seeking optimism to find it by joining us in seeking a stable tax environment and for more powerfully exercised state's rights in the face of an overreaching and predatory federal government.
Bristol Bay Times by Jim Paulin. Royal Dutch Shell's new chief executive said last week that the company is shelving its Alaska exploration program, at least for this year, a move that will impact the economy of Unalaska/Dutch Harbor.
Unalaska served as Shell's base in 2011 and 2012, as the nearest port with year-round open water and well-developed port facilities, despite being about 1,000 miles from the offshore oil prospects to the north in the Arctic Ocean.
"It's a pretty substantial hit," said Tom Enlow, of Unisea, which operates the Grand Aleutian Hotel in Unalaska. Shell had planned to rent between 70 and 75 hotel rooms daily from April through September, at an average of $139 per day, he said Monday.
The oil company's pullout means a loss of not only hotel rental revenue, but also food and beverage expenses, for both Unisea and other local restaurants, as well as less money for the local marine support sector that provides parts and services to ships, Enlow said.
The city government will also lose out because of reduced fees and sales taxes generated by Shell's activity, said Enlow, who is also a member of the Unalaska City Council.
Globe and Mail by Brent Jang. Northwest Territories Premier Bob McLeod (NGP Photo) says the key to reviving dormant plans for the Mackenzie Valley pipeline will be to transport natural gas from the Arctic into British Columbia instead of Alberta. Private-sector proponents of the Mackenzie line consider the NWT project to be currently uneconomic, based on market conditions of plentiful gas supplies in North America.
Arctic Gas Leadership
We have much respect for the 12th Premier of the Northwest Territories, Bob McLeod, and for his dedicated leadership of a huge, 440,000 square mile area that is about 2/3 the size of Alaska.
While we have itemized Alaska's myriad conflicts with its federal bureaucracy, the NWT has had its own federal challenges, too.
Like premiers preceding him, McLeod has fought to transfer control over natural resources from Ottawa to Yellowknife (i.e. devolution). He has governed a great land with fewer than 50 thousand citizens and worked to develop a responsible, resource-based economic powerhouse in the Arctic.
...and, he tenaciously pursues the 45+ year-old Arctic gas dream of moving Mackenzie Delta gas to market.
Simultaneously, Governor Parnell pursues a similar Arctic gas dream.
Most of the industry players in the Mackenzie Delta are Alaska North Slope producers/explorers as well. TransCanada is another party both projects have in common.
Once, it made more economic sense to move Alaskan and Canadian Arctic gas to market in the same pipeline. First, there was the Arctic Gas Pipeline route across the top of the Arctic National Wildlife Range (i.e. now a 'refuge'); then came the Alaska Highway route.
Labor, Environmental, and Canadian Aboriginal forces worked together to create obstacles for those project over the last four decades--in addition the brutal economic challenges posed by weak gas prices a generation ago to the shale phenomenon today.
We are sure that behind closed doors, industry and government policy makers in both the US and Canada would agree that the most efficient movement of Arctic gas would still occur through a joint pipeline. After all, the cheapest pipeline produces the greatest net profit to producers and the greatest volume of royalties and taxes to government.
Today, shale gas has cut off the concept of a Mackenzie Valley pipeline to the Central US and Canada.
So now, Premier McLeod is hoping Canadian Arctic gas can find its way to British Columbia as Alaska's Governor and producers are hoping economics and markets will support the movement of Alaska gas to Valdez.
Both the Canadian and Alaskan Arctic gas projects would be competing with each other for big but limited Asian markets.
Today, one cannot help ask: "Why not move Mackenzie Gas over ANWR in a safe, environmentally acceptable, buried gas pipeline to Prudhoe Bay?"
The two gas streams could flow to Valdez and the economies of scale would benefit producers and governments and citizens in both areas.
We are sure there is an answer to our question of, "Why not?"
The answer is, "Don't be naive. That may be more logical but you've got restricted rights of way that would likely take acts of both Congress and Parliament. Besides, we're already committed to planning for separate projects."
We agree that the political realities make the most logical solution to freeing Arctic gas unlikely.
We would also observe that through great leadership, great obstacles are overcome.
It would be a shame if Alaskans and Canadians were deprived of Arctic gas exports for another generation because two separate projects were just slightly short of economic feasibility when a joint projects' economies of scale could have produced prosperity for hundreds of thousands of citizens in both countries.
And so the Arctic Gas saga continues....
|Alaska Dispatch Commentary by Craig Richards, advisor to Bill Walker (NGP Photo-l), candidate for governor. Gov. Sean Parnell's (NGP Photo) new gas pipeline approach reminds me of Edmund Burke’s admonishment that those who don't know history are doomed to repeat it.
Department of Natural Resources Division of Oil and Gas today released its annual Five-Year Program of Proposed Oil and Gas Lease Sales for the period 2014 to 2018.
U.S. Sen. Lisa Murkowski (NGP Photo) today reiterated her call for the Obama administration to end the prohibition against exporting crude oil produced in the United States to spur job creation and increase the nation’s energy security.
Energy and Natural Resources Committee Chairman Ron Wyden (NGP Photo), promised to make sure impacts on American employers, consumers and families are at the forefront of any discussion about exporting crude oil, in a hearing today.
Shell Announcement: Ben Van Beurden (Company Photo), who became the new CEO of Royal Dutch Shell plc (“Shell”) on 1 January 2014, said Shell’s strategy overall is sound. ... The recent Ninth Circuit Court decision against the Department of the Interior raises substantial obstacles to Shell’s plans for drilling in offshore Alaska. As a result, Shell has decided to stop its exploration programme for Alaska in 2014. “This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014,” van Beurden said. “We will look to relevant agencies and the Court to resolve their open legal issues as quickly as possible.” ...
Shell Media Relations:
- International +44 207 934 5550
- Americas +1 713 241 4544
Shell Investor Relations:
- International +31 70 377 4540
- North America +1 713 241 1042
Last week, we reluctantly took a stand, criticizing the action of a Member of Alaska's Congressional Delegation. We said, We do find it unsettling that a Member of Alaska's Congressional Delegation -- or any Member of Congress -- would become a Member of Congress, swear to uphold the Constitution, and then deny the due process guarantees .... How could any lawmaker or administrator of law try to deny protections of the law and Constitution to any citizen?
Energy Daily. A court decision regarding offshore oil and gas leases off the coast of Alaska could hinder oil giant Shell's plans to drill in the Chukchi Sea.