Miss a day
Miss a lot

 

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

 

Commentary

11-12-15 IEA Says Oil Prices Loom Low, Longer -- May Extend Alaska & Alberta Fiscal Crises

12 November 2015 5:20am

Log onto Alaska Headlamp for its useful report today!


Our venerable, mid-Atlantic energy analyst friend is worried about overcapacity of gas transportation projects: Alaska and Alberta, are you listening?  Read more....  AND ... our Aussie energy analyst friend relays the story of Anadarko's interest (i.e. subsequently withdrawn) in taking over Apache Corporation.  Read more....   -dh


Low Oil Prices Loom Longer.... CBC.  Oil prices are likely to remain low over the next five years because of plentiful supply and falling demand in developed countries, the International Energy Agency said Tuesday in its annual forecast.  The Paris-based body, which advises developed countries on energy policy, says it expects oil prices to return to $80 per barrel in 2020, with further increases after that.

Fiscal problems "loom" over Alaska & Alberta oil Economies; liberal leaders are hostile to the oil industry but seem pressured into giving it lip service!  -dh

Alaska Journal of Commerce by Tim Bradner.  ...time for the big Resource Development Council annual conference.  ... huge issues loom for Alaskans including the proposed $50-billion plus North Slope gas pipeline and liquefied gas project and the state’s ... $3 billion-plus annual deficits.


If Alberta Premier Rachel Notley is supportive of the oilsands and of "...a strong energy industry...," we wonder what her message will be when she joins the world's other socialist leaders -- including America's -- for the International Climate Change Summit in Paris.     See our earlier Paris Summit commentary, "Killing Capitalism".    -dh

Calgary Herald by Don Braid.  Stand back. Environment Minister Shannon Phillips has something to say about claims that she’s out to shut down the oilsands.

“I categorically reject this charge that I’m somehow against the oilsands,” says Premier Rachel Notley’s most forceful minister, who heads to Paris in two weeks for the international climate change summit.

“It is false. I, like the rest of my cabinet and caucus, know that we are — and will be for the foreseeable future — an energy economy.”

“I’ve said this every single time I speak publicly on the matter . . . we are going to build economic diversification on the back of a strong energy industry. I’ve never felt any differently on the matter.”


 

From: Our mid-Atlantic energy analyst friend re: potential for gas transportation overcapacity.

We have discussed the deplorable state of natural gas pricing, skating just above $2/Mcf (and much lower, for many Utica / Marcellus producers, down below $1/Mcf). 

Conventional wisdom says prices should stay depressed for perhaps at least two more years, waiting for infrastructure to be completed that will direct the natural gas to waiting markets. All very convenient as an outcome.

But suppose:

·        The amount of pipeline infrastructure brought on line exceeds the demand for the natural gas in several, if not most, of the intended end markets.

·        The amount of natural gas available continues to exceed the end demand on a throughput (daily) basis.

·        Both situations happen.

It has been generally assumed that supply and demand will come into relative balance when the end the incremental end users (including LNG exports, incremental power generation, exports to Canada and Mexico, increased industrial demand, and feedstock uses, among others) get their acts together. It should be lumpy in coming together, but should happen at some point, given the attractiveness of a cheap supply of natural gas.

It has also been generally assumed that the pipelines to accomplish this should not greatly exceed the amount needed to create the eventual balance, i.e. not to greatly exceed demand. But there are so many MLPs and others chasing projects with cheap money, that the possibility of over-construction has never been higher. Why should the gas producers be the only ones to have the fun of driving their industry into the ground through excess competition?

We have seen forecasts of a high possibility that both producers and pipeline companies are traveling parallel paths to sustained over-capacity.

In 2010, we asked several infrastructure companies at a conference to tell us how they avoided building too much capacity. We received some answers as to how a given company measured the need for its projects. But we have never had it satisfactorily answered as to how competitors are kept from acting irrationally.

Bottom Line: We are not predicting that BOTH gas production and infrastructure will get overbuilt. But we will be watching for signs it is happening.

Categories:

11-11-15 Veterans Day In The U.S.

11 November 2015 5:44am

Veterans Day 2015 and Hilcorp's Alaska North Slope Liberty Project

Yes, there is a link

Commentary by

Dave Harbour  

It was a rainy, windy, cool day, that November 10, 1966.

Panmunjom is the well known, Freedom's Frontier guard post -- the most dangerous in the world.  

Today, we wore our Panmunjom hat in a Veterans Day ceremony.  

Today we remind our readers and ourselves that there is more than one way to serve!

Today, we remember with respect two fellow Anchorage, Alaska citizens who served with us on the Korean DMZ: Aves Thompson and Chris Nelson.

Panmunjom, United Nations, Freedom's Frontier, DMZ, Korea, Dangerous outpost, Photo by Dave Harbour

Our advanced infantry training  (AIT) company had just run into the old WWII barracks classroom at Fort Dix, N.J.  

When the 200 of us took our seats in the 1950s era classroom desk-chairs, cold water streamed from our nearly bald, shaved heads, down our necks, through the soaking fatigues to form puddles on the warn, wood floor.

"Tomorrow's our day, boys!"

The hard as nails, bullet spitting, wrinkly and tanned-faced old drill instructor (DI)  leaned forward at the podium, his sharp eyes staring through our own as if to challenge our very souls.

He was the real thing, a nearly real facsimile of Clint Eastwood!

You don't see DIs cry...ever....  

Then, unless I was imagining it because of the tenderness of his tone, I think I saw his eyes moisten as he slowly spoke of America's heritage:

  • President George Washington's reliance on our Creator, verified in his Thanksgiving Day Proclamation, and
  • Francis Scott Key's perfect national Anthem and reaffirmation that for those living in America's freedom, "in God is our trust", and
  • President Lincoln's reliance on spiritual guidance, well evidenced in his Thanksgiving Day message, and

...then, our DI, tough-as-nails Staff Sergeant Kane spoke of his own recent wars: WWII, Korea and Vietnam, of friends injured, of comrades killed, of dreams postponed or destroyed, of families forever affected -- all for the love of this free Country.

Then he told us that we were already soldiers, brand new veterans: not fully trained, to be sure, but members of the club of those who have served in an American uniform since the birth of the Nation.

He wanted us to know that the next day's approaching Veterans Day was not just for those who went abroad.  It was for all who served, no matter when, where, how long or under what circumstances...for, all were prepared to make the ultimate sacrifice.

You could have heard a pin drop on that old, rugged, wood floor.

Then, before returning to the class schedule, he proclaimed again, "Tomorrow's our day, boys!"

In the five decades since my Army days I've always thought that those in civilian life have opportunities -- and responsibilities -- to serve and support their country alongside active duty warriors.

There are many ways those at home may serve.

One of those ways is by enhancing the economic strength of America: supporting a robust energy culture.  Without energy, a country is at the mercy of those with it.  Those with energy extract wealth and opportunity from needy energy nation consumers.

Today, after attending a Veterans Day ceremony, I remembered SSgt Kane's tough instruction and touching review of our history and culture. I remembered my service on the Korean DMZ; of rapid promotions in four years from Private to Captain made possible by rapid Vietnam attrition; of dear friends departed; of a close veteran's bond with Senator Ted Stevens, beginning with our meeting in 1970 in Washington.

As a civilian once again, but one with an unshakeable veteran's sense of mission, today I remembered there was an energy support task that needed doing.

Here is a letter RDC President Marleanna Hall submitted to BOEM.  Our thanks to Carl Portman for providing it to our readers.

So, I finished writing a Veterans Day letter to the Bureau of Ocean Energy Management (BOEM) supporting approval of Hilcorp's Liberty Project.  Last week, our readers learned of the opportunity to weigh in for economic prosperity, for Alaska's future, for America's strength.

Here is a copy of the letter I wrote  today.  I hope all of our readers will consider sending in their own comments.  Here's how.

After all, I think we can all agree and reaffirm on this 2915 Veterans Day that, indeed, there is more than one way to serve our Nation.

____________________________________

 

Categories:

11-9-15 Former Alaska Commissioner Recommends Minimizing Gasline/LNG Risk

09 November 2015 7:59am

Our readers know that over the last year we have investigated and commented on the large risks accompanying large equity investments of public money into large energy projects.

The two of which we are most concerned, are the AK-LNG gas monetization project and the Interior Energy Project.

Under the 'Search Our Site' box, top right, readers can review these earlier commentaries by entering desired 'key words'.

-dh

Support Hilcorp's Liberty Project HERE...TONIGHT!


Can Walker Find A Less Risky Way To Support Alaska's LNG Project?

Bill Walker, Governor, Alaska, LNG, equity ownership, Dave Harbour Photo

A former Alaska Department of Natural Resources Commissioner (DNR) and other Alaskans sent LNG Project risk reduction suggestions (i.e. below) to Governor Bill Walker (NGP Photo) on November 3, 2015.

Harry Noah, Commissioner Natural Resources, Alaska, LNG, Photo by Dave HarbourThe letter was signed by former DNR commissioner, Harry Noah (NGP Photo), and four other prominent Alaskans, including Frank Murkowski, Alaska Governor, LNG, U.S. Senator, Photo by Dave Harbourformer Governor Frank Murkowski (NGP Photo).  

In the letter, the writers expressed concern about the level of risk the state was about to undertake in 'buying out' TransCanada's interest in the Ak-LNG project, during the special session which was convened from October 23th to November 5th.

The letter provided more than risk concerns about the enormous, Alaska LNG project, currently in a pre-Front End Engineering and Design phase (Pre-FEED).  It also recommended the governor adopt certain priorities dealing not only with a reduction of risk that the state could lose hundreds of millions in public money.  

Other suggestions included a focus on issues that could support ultimate success of the project, including the Larry Persily, Pipeline Coordinator, Alaska, LNG, Kenai Borough, Anchorage Daily News, Photo by Dave Harbourprovision of fiscal security to the LNG Tim Bradner, LNG, Journal of Commerce, Alaska Legislative Digest, BP, Dave Harbour Photoproject's producer-investors and giving the public much more information.  -dh

Below is the full text of the letter, for our readers to review.  We also ​provide this relevant, historical recording of a 2014 forum sponsored by Commonwealth North. ​

Professor Emeritus Scott Goldsmith, University of Alaska, ISER, LNG, Smooth Landing, Fiscal Crisis, Photo by Dave Harbour

The forum included as moderator, the then Alaska Gas Pipeline Federal Coordinator, Mark Foster, Regulatory Commission of Alaska, LNG, utility rates, Photo by Dave Harbour, Anchodrage School DistrictLarry Persily (NGP Photo-above-R); Harry Noah; energy writer Tim Bradner (NGP Photo-above-l); University of Alaska Economics Professor Emeritus Scott Goldsmith (NGP Photo-below l); and, former Alaska Utility Commissioner (RCA) Mark Foster (NGP Photo-Below R).

---------------------------------------------------
 
 

November 3, 2015 Letter to Governor Walker below.  

(Find original .pdf here)

 
The Honorable Bill Walker Governor of Alaska  PO Box 110001 Juneau, Alaska 99811-0001  
November 3, 2015  
A PROPOSAL TO REDUCE THE GASLINE RISK 
Dear Governor Walker; 
 
It is unreasonable to think that the State will get a return on an investment in the gasline project for 8 – 12 years. While waiting the State should do everything in its power to support the project, including taking its gas in kind and providing fiscal certainty on taxes. 
 
However, there should be a discussion between your Administration and the Legislature about the risks the State will face after it buys out TransCanada. By owning 25% of the project the State will be required to pay 25% of the front end, pre-construction costs prior to a decision by the Producers whether or not to build the project. What happens to those funds if the Producers decide not to build the project? This paper proposes two alternative ways to avoid that risk. 
 
The front end pre-construction costs that the State must pay (even if the project is not built) are considerable It has been estimated that Front End Engineering and Design will cost approximately $2 billion, of which the State’s share would be $500 million.  
 
But the State’s share could be more - detailed engineering and design is normally 7-8% of a project’s capital cost. Assuming that the capital cost is $55 billion, the State would owe over a billion by this measure. How much State money would actually be at risk is hard to know at this point because a spending schedule is not available.  
 
The project risks are considerable. Alaskans will not have a more realistic estimate of the cost of construction ($45 – 65 billion) until FEED is completed.
 
At present we have no permits, no construction schedule, no agreement on the size of the pipe (42” v. 48”), no ramp up schedule for LNG production (the market can only take so much LNG at the start of such a project without depressing demand, thereby reducing the price) and no real ability to estimate what the price of LNG will be 8 – 12 years from now.  
 
However, the Administration is proceeding on the assumptions that after buying out TransCanada the State will own, and pay for, its 25% share of the project and that the Producers will build the project 8 – 12 years from now. The first assumption is dangerous because the second assumption is unknowable.. 
 
For example, FEED is next big project decision the Producers need to make. If they decide to proceed to FEED the State would be required to pay its 25% share ranging from $500 million to over a a billion dollars. If the Producers then decide for whatever reason not to build the gasline, a decision over which the State has no control, the State would lose its investment.  
 
The State’s record of losing its pre-construction investments on gasline projects demonstrates the risk of assuming that a project will be built 8 - 12 years in advance of first gas. For example: 
 
1. The 1978 Legislature awarded a 27-year contract to Texas based Alaska Petrochemical Company selling them nearly all of our Royalty Oil.  Three years later the company known as AlPetCo closed its doors, walked away owing the state nearly $60 million.  
 
2. Governor Hickel used private money to fund Yukon Pacific, but the line was not built and its investors lost money.   
 
3. The State made $500 million available to TransCanada to build the line under Governor Palin’s Alaska Gasline Inducement Act (AGIA) and is now spending another $150 million to buy out of the agreement.   
 
4. Had AGIA succeeded in constructing a gasline to the Lower 48, it would have lost the State money because of the advent of the new, shale gas technology.  
 
5. The Port Authority failed to build a gasline to Valdez and lost the pre-construction money invested by Fairbanks, Valdez, and the North Slope Borough in the process.    
 
Each of these projects was advanced in good faith by Alaskans who had the best interests of the State at heart. The problem is that whether a project that has an 8 – 12 year lead time will actually ever be built is unknowable. 
 
There are two ways to advance the project but prevent the State from losing preconstruction risk money if it is not built:  
 
First Alternative:  
 
1. The State would maintain the same level of project participation and oversight that it is now doing, except that the State would not advance pre-construction risk money;  
 
2. In cooperation with the Producers the Administration would determine what the preconstruction costs are and make that information available to the Legislature and the public;   
 
3. The Producers have been clear that they require fiscal certainty on taxes and a State commitment to takes its gas in kind before spending $billions on FEED. In exchange for the State agreeing now to fiscal certainty on taxes and taking its gas in kind it is equitable for the State to require that the Producers, not the State, to advance the FEED and  preconstruction risk money to develop the project;  
 
4. If the Producers elect to construct the project the State would then pay its 25% share of the pre-construction costs as part of its financing of its 25% share of the construction costs; and   5. If there is no project the State would not pay the pre-construction costs.  
Second Alternative: 
 
1. The State would provide fiscal certainty on taxes and commit its gas to the project as Royalty in Kind, but the State would not be an owner of the gasline or the liquefaction plant. This is the same arrangement we currently have with TAPS.  
 
2. The State would be responsible for selling its gas. It would pay a transportation tariff to the gasline owners.  
3. In advance of reaching such a decision the State would make an economic analysis of the financial impacts of ownership (including the risk of loss of pre-construction dollars and construction cost overruns) versus non-ownership. The analysis would also compare what would have been the economic consequences had the State owned a share of TAPS versus the funds the State has made without owning such a share. This information would be made available to the Legislature and the public and discussed. 
 
In conclusion it is equitable to have the Producers take the risk of losing the pre-construction costs in exchange for fiscal certainty and the State taking its gas in kind because the Producers control the decision of whether or not to construct the gasline. Moreover, these are risks the Producers take on projects all over the world. Conversely, as the record above shows, the State has already lost significant amounts of money in taking these pre-construction risks. 
 
Finally, prudence dictates that the State avoid significant financial risk at a time when it needs to conserve State funds because of low oil prices and falling production.  
 
      Yours truly, 
                                       
______/s/______________  _____/s/_____ FRANK H. MURKOWSKI  JIM CLARK Former Governor of Alaska  Former Chief of Staff Former Alaska Senator   To Governor Frank H. Murkowski   
_____/s/______    ______/s/_______ HARRY NOAH    JOHN REEVES Former Commissioner of DNR  Fairbanks Businessman Former Bullet Line Manager    
_____/s/_______     PERRY GREEN     Green Furriers 

 

Categories:

11-6-15 End of a historic week in Alaska

06 November 2015 6:42am

Our Alaska BP friend, Julie Hasquet, notes the launching this week of, "BP's inaugural, Technology Outlook.  Readers may obtain a copy here.  -dh

Our Washington D.C. friend with IER, Dan Kish, notes that House democrats have filed this bill targeting an Alaska oil  & gas prohibition in Cook Inlet and the Arctic -- not to mention coal.   Founded on the religious belief in a concept called, Global Warming, the bill (i.e. called the "Keep It In The Ground Act Of 2015") is being filed as in concert with other Paris Climate Change preparations by the U.S. President, including disapproval of the Keystone XL project.  We assume Alaska's Congressman Don Young is on top of it.  Unbelievable how so many could appear to love their country's economy, civilization, standard of living and culture so little.  -dh


For gas pipeline and LNG export planners, the EIA reportsWinter natural gas futures prices are significantly lower than previous years


Support Hilcorp's Liberty Project HERE!


 

David Holt, Consumer Energy Alliance, Alaska, TAPS, Hilcorp, Liberty,  Photo by Dave HarbourToday's Relevant Consumer Energy Alliance Energy Links


Calgary Herald/AP: Killing (TransCanada's) pipeline allows Obama to claim aggressive action on the environment....​

Senator Lisa Murkowski says Obama Ignored Keystone Facts

Congressman Rob Bishop calls Obama, "...the most anti-energy extremist President the nation has ever had...."

Financial PostPresident Obama’s first recognition of Canada’s new Prime Minister is an apparent slap in the face. In rejecting (TransCanada's) Keystone XL pipeline — which Justin Trudeau has supported — Obama has offered up yet another sacrifice to his presidential legacy en route to the climate melee in Paris. (See our commentary: "Killing Capitalism") ​

Our earlier report on TransCanada financial challenge/layoffs

TransCanada sells 49.9 percent interest in Portland Natural Gas Limited Partnership

TransCanada Challenge With Energy East Port


President Obama rejects TransCanada's application to build the Keystone XL pipeline, saying -- either misleadingly or stupidly -- that the project would not spur economic growth. 


Alaska's Historic Week

Dear Reader:

Yesterday, we published an early, draft report of the recent special session of the Alaska State Legislature concerning the 'buy-out' of TransCanada's interest in the Alaska LNG project.  

We should have waited for a later draft.

Dissatisfied with the result, we reworked it overnight, attempting to do better justice to a historic week in Alaska.

We hope that any reader who was disappointed with that first draft will scroll down or click back to read the newer, edited and shorter version.

We thank the several dozen readers who provided helpful comment during the special session and, as always seek the guidance of those wiser and more knowledgeable than we, as daily reports are submitted into the archives of Northern Gas Pipelines for future study and reference by industry, government, academia and the news media.

Respectfully and warmly,

Dave

P.S. New Special Session Reports and References: 


 

SUPPORT HILCORP WITH ITS ALASKA NORTH SLOPE LIBERTY PROJECT ELECTRONICALLY  -- OR IF YOU LIVE IN ANCHORAGE, PLEASE RESERVE MONDAY NIGHT TO GIVE A FEW SENTENCES OF ORAL SUPPORT!!!!

(Thanks to the Alliance for this notice)

WHO: Hilcorp’s Liberty project
WHAT: Needs public comments in support of development
WHEN: Mon., Nov. 9, 2015, Between 7-10 p.m. 
WHERE: Embassy Suites Hotel, 600 E. Benson Blvd., Anchorage
WHY: We need responsible resource development and the investment dollars they bring to Alaska
MORE INFO: www.libertyprojectak.com

As the Liberty Unit Operator, Hilcorp Alaska, LLC is currently pursuing all of the necessary permits and authorizations to develop the Liberty Reservoir.  One step in this process is the preparation of an Environmental Impact Statement (EIS).  During this time, the Bureau of Ocean Energy Management (BOEM) will hold public scoping meetings throughout Alaska to analyze the potential environmental effects of Hilcorp’s Development and Production Plan (DPP).  Please consider attending the local scoping meeting and making these points:
Based on proven technology currently being employed in the Arctic… 
Hilcorp will utilize the construction and operational technology perfected at Alaska’s other offshore facilities. It’s proven to be a safe and effective means for oil & gas development in the Arctic.
Artificial islands in the Alaska Beaufort Sea date back to the mid-1970s. In the last 40 years, eighteen (18) islands have been responsibly constructed for exploration and development of oil and gas off the coast of Alaska. Like Liberty, the majority of the artificial islands were constructed in shallow water depths less than 20 feet.  
Alaska has a 30-year record of safely operating offshore in the Arctic. Endicott, the first offshore development on the North Slope, has been in operation for almost three decades, and now there are three other offshore fields in production: Northstar (2001), Oooguruk (2008) and Nikaitchuq (2011).
More oil in TAPS…
The Liberty oilfield contains one of the largest potential sources of new light oil production on the North Slope, with an estimated 80-130 million barrels of recoverable oil. 
Development of Liberty will help offset declining light oil production on the North Slope and contribute to increasing the life span and efficiency of TAPS.
New oil is needed to keep the pipeline operating efficiently now that throughput is less than 25 percent of capacity. An additional 60,000-70,000 BOPD from Liberty will be an important addition to keeping the pipeline operational for decades to come.
Economic Benefit…
As the first Outer Continental Shelf oil project in the U.S. Arctic, Liberty will provide important tax and economic benefits to the federal government, State of Alaska and North Slope Borough. It will generate construction jobs – primarily for Alaskans – and good-paying permanent jobs. It will create business opportunities for many Alaska businesses.
More information about Liberty can be found at www.libertyprojectak.com

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 11:59pm Eastern Daylight Time on November 17, 2015.
Hilcorp’s Liberty DPP can be viewed at: http://www.boem.gov/Hilcorp-Liberty/


 

David Holt, Consumer Energy Alliance, Keystone XL, Photo by Dave HarbourThe CourierClean Line station preferred in Pope 
The converter station represents a direct investment of over $100 million in Arkansas, according to David Holt (NGP Photo), president of the Consumer Energy Alliance — a group which stated on its website it provides the energy consumers with sound, unbiased information on U.S. and global energy issues.

 
Electric Light & PowerVIDEO: Plains & Eastern Clean Line transmission project moves forward 
David Holt, President of the Consumer Energy Alliance said, “Modern infrastructure projects like the Plains & Eastern Clean Line are critical to ensuring an affordable, reliable power supply for energy consumers here in Arkansas and across the Southeast United States. This project will not only deliver low-cost clean energy to Arkansans, but will create jobs and manufacturing opportunities here, as well. We are pleased to see this critical infrastructure project come closer to fruition.”

 
Coastal ObserverPolitics: Offshore drilling opponents see victory in city election 
Voters in the city of Georgetown elected three Democratic candidates to City Council this week after members of a local environmental group campaigned for them on the basis of their opposition to offshore oil drilling in the Atlantic. Democrats Al Joseph, Sheldon Butts and Clarence Smalls soundly defeated Republicans Richard Powers, Lee Padgett and Tom Winslow.

 
Washington TimesObama, TransCanada say little about likely doomed Keystone pipeline
Twenty-four hours after claiming authority to make the final decision on the Keystone XL oil pipeline, the Obama administration said little about the issue Thursday, even as it looks increasingly likely that the project will die at the hands of the president.
 
The HillDems to Obama: Reject Keystone before Paris
Democrats and environmental groups are ratcheting up pressure on President Obama to reject the Keystone XL pipeline now, ahead of major international climate talks in Paris next month. After a week of action on Keystone, Democrats say that denying the project before the conference would send a powerful — if symbolic — message about the United States’ resolve to combat climate change.
 
ReutersFed's Harker says Marcellus natural gas boom likely has peaked
The U.S. natural gas boom centered on the Marcellus shale fields has probably hit a peak for now, Philadelphia Federal Reserve President Patrick Harker said on Thursday. "The robust natural gas drilling that carried this region through the worst of the Great Recession has likely plateaued in the past few years," Harker said in prepared remarks to be delivered in Philadelphia.
 
ReutersU.S. shale producers see big budget cuts for 2016
U.S. shale oil producers, having slashed fat from 2015 budgets after a 50-percent drop in crude prices, risk cutting to the bone next year as they pare spending further and get ready for a prolonged downturn. Top shale companies including Devon Energy Corp, Continental Resources Inc and Marathon Oil Corp this week released preliminary 2016 plans for capital spending that may fall by double digits.
 
Wall Street JournalOil Slump Forces Deep Cuts by Service Providers
Oil-field service companies are slashing costs amid an industry-rattling fall in crude prices, and no cut is too small—such as using white paint instead of yellow on underwater equipment.  “It’s not big money,” said Hallvard Hasselknippe, president of subsea at Technip SA, noting that adding pigment to make the industry standard yellow paint is more expensive. “There are many examples like this.”
 
Fuel FixChina keeping an eye on surging U.S. oil and gas production
The United States’ energy renaissance is catching attention in Beijing, where Chinese leaders view the phenomenon as “a double-edged sword,” according to a white paper from the free-market group American Council for Capital Formation. “China trusted the United States more when U.S. oil import dependency was higher and Washington actively sought increases in global oil production, a mutually shared objective,” writes George David Banks, executive vice president of the group.
 
Houston ChronicleBleak results continue for oil companies
More oil companies Thursday reported the bleak financial fallout from a crude price drop in the third quarter, even as the price of a barrel continued a fairly steady streak into the final three months of the year. At least three Houston-based independent oil producers reported third-quarter losses.
 
E&E NewsGulf of Mexico is bright spot for otherwise depressed industry
Offshore drillers appear to be muddling through the oil price bust. Production continues to rise in the Gulf of Mexico. Discoveries have been reported in new and mature offshore provinces. And offshore drilling may perk up again in Canada and elsewhere, even with oil prices in the doldrums.
 
OilPrice.comObama Admin Throws Alaska an Oil Lifeline
On Oct. 22, the U.S. Bureau of Land Management (BLM) gave the go ahead to a drilling plan in the National Petroleum Reserve in Alaska (NPR-A), one of the last ditch efforts to keep the Trans Alaskan Pipeline from running dry. ConocoPhillips has plans to drill the Greater Mooses Tooth Unit (GMT-1), which could result in the first oil and gas production from federal land in the NPR-A.
 
E&E NewsAlaska poised to gain equal share in LNG megaproject
The Alaska Legislature this week opened the door for the state to become an equal partner with three major oil companies on a multibillion-dollar venture to commercialize Alaska's abundant North Slope natural gas reserves.
 
Juneau EmpireArctic drilling complaint clears Legislature
After passing a landmark gas pipeline deal, the Alaska House approved a formal complaint against the Obama administration’s decision to cancel oil and gas lease sales in the Arctic. Unlike the gas pipeline bill, which passed unanimously in the House, the Arctic complaint broke mostly along majority/minority lines as it passed 27-12, with one representative absent.
 
BreitbartShock: Jerry Brown Used State Experts to Seek Oil On Family Land
California governor Jerry Brown used state experts to prepare a 51-page report on the prospects for oil development on his family’s private land in Northern California, according to an Associated Press investigation released early Thursday morning.
 
Seattle TimesWashington state joins legal fight to defend Obama climate plan
Washington and Oregon have joined a coalition of 18 states to defend President Barack Obama’s plan to slow climate change by reducing greenhouse gas emissions. They are opposing lawsuits filed last month against the Environmental Protection Agency by 25 mostly Republican states and allied industry groups.
 
KDRV 12Oregon Joins Legal Fight to Defend Obama Climate Plan
Washington and Oregon have joined a coalition of 18 states to defend President Barack Obama's plan to slow climate change by reducing greenhouse gas emissions. They are opposing lawsuits filed last month against the Environmental Protection Agency by 25 mostly Republican states and allied industry groups.
 
Denver PostCSU study says oil and gas water contaminants low in DJ Basin
A new Colorado State University report says there is no evidence water-based contaminants are seeping into drinking-water wells over a vast oil and gas field in northeast Colorado.
 
The ColoradoanColorado’s ozone fight could drive up costs
Larimer County is one of only 14 U.S. counties headed for the Environmental Protection Agency’s ozone blacklist in 10 years. The EPA adopted a new ozone pollution standard of 70 parts per billion last month, prompting cheers from many fans of smog-free skies but triggering a unique challenge for Northern Colorado, which is still out of compliance with the 75 ppb ozone standard adopted in 2008
 
Midland Reporter-TelegramComptroller: Saudi Arabia leaders “gambled and Texas won”
In June, Midland broke its streak where the sales tax collections were higher each month than the same month the year before but the economy is not all doom and gloom, according to Texas Comptroller of Public Accounts Glenn Hegar.
 
The Times-PicayuneSt. Tammany fracking fight heard by appeals court in Baton Rouge
The protracted controversy over fracking in St. Tammany Parish returned to the courtroom on Thursday (Nov. 5) where attorneys presented oral arguments to the 1st Circuit Court of Appeal in Baton Rouge and answered questions about how much control the state and individual parishes have when it comes to oil and gas drilling in Louisiana.
 
The Register-HeraldCouncil to mull support for banning fracking waste
Local geologist Brandon Richardson, on behalf of the Fayette County Headwaters Defense group, asked Fayetteville Town Council at Thursday’s meeting to pass a resolution in support of the Fayette County Commission passing a county-wide ordinance to ban fracking waste disposal.
 
The VindicatorAnti-fracking proponents snubbed by voters again
Why won’t the advocates of the absurd proposal to ban fracking in the city of Youngstown just go away? Because like all other self-appointed protectors of society, they can’t fathom not being embraced by a majority of the public. And so it is that the leaders of FrackFree Mahoning Valley are contemplating a sixth attempt to pass a charter amendment that would prohibit the use of fracking to extract oil and gas in the city of Youngstown.
 
Harriot Patriot-NewsFor a cleaner future, Pa. needs to focus on natural gas and nuclear energy: J. Winston Porter
President Barack Obama's new Clean Power Plan, which calls for a 32 percent reduction in carbon emissions from our power plants by 2030, places too much focus on solar and wind power. That's unfortunate since natural gas and nuclear energy must play the lead roles in meeting these carbon emissions targets.
 
Saint Peters BlogToday on Context Florida: Fracking, U.S. Therapist General, delayed justice and the latest Salt Shaker Test
Sarah Maricle Ayers warns that Floridians should weigh facts on fracking before banning its benefits. The exciting energy frontier that hydraulic fracturing represents is one of the best-kept secrets in Florida. The process consists of blasting a water, chemical, and proppant solution under high pressure to create fissures in rocks, which then allows the release of the oil and hydrocarbons locked within.​


CANCELLATION OF EXISTING LEASES.—Notwithstanding any other provision of law, not later than 60 days after the date of enactment of this Act, the Secretary shall cancel any lease issued under section 8 of the Outer Continental Shelf Lands Act (43 U.S.C. 1337) on or before the date of enactment of this Act in the Beaufort Sea, Cook Inlet, or Chukchi Sea.

Categories:

10-28-15 Shell Hit Again--This Time In Canada

28 October 2015 6:17am

Today's LNG Hearings and Shell's Canadian Setback (Note as you read all these items how closely related energy projects are to the economic health of our economies!  Perhaps as enviro activists and hostile local and federal governments attack energy projects in the future these case histories will cause the adults in the room to better and more loudly articulate a wiser way forward.  -dh)


Bill Walker, Alaska Governer, Pension Fund, Unfunded Liablity, Photo by Dave Harbour

ADN by Pat Forgey.  Gov. Bill Walker (NGP Photo) is wondering if pension borrowing may be useful in Alaska.

Under consideration are what are known as "pension obligation bonds," borrowing money on Wall Street using the state's strong credit rating, and then investing the proceeds along with the state's retirement trust funds.

Globe & Mail by Justin Giovannetti.  ...{Alberta} will run a deficit of $6.1-billion this year, just short of Finance Minister Joe Ceci’s worst-case scenario and the largest in two decades.  (More....)  Comment.  This link came to us from a Lower 48, former Alaskan resident who observed: "Not that population is a single metric to be evaluated; but if you compare a $3 billion+ deficit for Alaska to Alberta's which has a population that is 6x Alaska's with much more infrastructure, it shows how out of whack spending in the Great Land is."    -dh

If the state can borrow money at 5 percent interest, and earn an expected 8 percent on the invested money, the difference could bolster state retirement savings.  More.  

(Note: we are not opposed to the concept of fully funding the employee pension program via borrowing and would only note that its efficacy is based on an assumption of robust pension fund earnings.  However, that is not necessarily negative since it there is always market exposure with any sort of invested trust funds.  But there are other practical and political implications which we note without further comment:  1) It removes the argument that Alaska is investing in a risky LNG project using money that could be used to pay down an employee pension unfunded liability; and 2) It eliminates the "optics" of legislators and the governor -- who may be beneficiaries of the pension fund -- from having someday to fulfill the 'full faith and credit' state responsibility to retirees by advocating a citizens' vote to bolster the unfunded liability from the "citizen owned'' Alaska Permanent fund.  This could also be the result of a contentious, class action lawsuit eventually settled by the courts.  (3) It provides the benefit of resupplying pension funds at borrowing rates that may be the lowest in history, never available again.  (4) It increases by maybe up to $10 billion the overall indebtedness of the state of Alaska which would have an unknown effect on the credit worthiness and thus the credit rating and future borrowing costs of the state.  -dh)


TODAY'S Alaska LNG Legislative Hearings: See the live streaming schedule (House Finance, 1:30 ADT; Senate Finance, 3 P.M. ADT).   After watching Senate and House Finance Committees for the last several days, we are impressed with the focus, dedication and fact-finding of these elected officials.  On the other hand, we remain concerned about the ultimate effect this Administration will have on the culture of 'Independent Alaska' with its obvious determination to own and/or control energy businesses in Alaska.  In today's hearing, some of the perils of government ownership surfaced via excellent questioning of Senate Finance Committee members.  We believe the legislators are representing their Alaskan constituents well during the course of their rigorous questioning of all Alaska LNG project representatives and state officials.  -dh

Canada Struggles With Low Energy Prices and Lack of Pipelines....

Within a month after having abandoned its Alaskan Arctic OCS drilling program due to partly to low oil prices, environmental activist delays and federal government roadblocks, the company puts a hold on an oil sands prospect for some of the same reasons.  -dh

Globe & Mail by Jeff Lewis.  Royal Dutch Shell PLC is scrapping a massive steam-driven oil sands project, blaming the collapse in oil prices and a lack of pipelines to move crude from Alberta to global markets. More...  (One wonders how Shell could be so involved with liberal European governments and environmental NGOs in the upcoming Paris Climate Change summit when anti-oil environmental activism is partly responsible for the lack of new pipeline systems in Canada/U.S. and a wasted, six year, $7 billion exploration effort recently abandoned in Alaska.  -dh)

Categories:

10-26-15 Alaska LNG Legislative Struggle

26 October 2015 6:07am

What do you think Alaska should do?

Commentary by

Dave Harbour

Commentary:

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

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

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

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

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

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

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

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

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

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

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

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

    Epilogue

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

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

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

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

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

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

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

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

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

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

______________________

Final observation for Legislators:

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

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

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

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

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

-DH

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

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


 

Larry Persily News Briefs....

Oil and gas news briefs for Oct. 26, 2015

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

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

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

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


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

 

Categories:
Syndicate content