While consumers rejoice, low oil prices cause "crises" to those governments and economies that are highly dependent on a high price for the volatile oil & gas commodities they produce.
It may be instructive for decision makers in Alaska and Alberta, for example, to observe -- as they develop their own creative solutions -- ideas from abroad.
Here is what the Ecuador’s Vice President Jorge Glas said yesterday in a Radio announcement about that country's dependence on falling oil prices (See our earlier story re: Ecuador - Pebble Project, Alaska). “We have already faced similar situations, as have many countries throughout Latin America. We have a technical government that is prepared to face this crisis." According to a recent posting of a Tiempo Story, "The Ecuadorian government is taking a number of steps to address the economic repercussions of the dramatic decline in oil prices. One such measure has been the revocation of the 5% increase in public sector wages which was scheduled for 2015. There have also been a number of proposals to cut the state budget by as much as $1.4 million. Ecuador’s Minister of Finance Fausto Herrera recently reported that the government will cut its capital expenditures by over $800 million, in addition to a $580 million cut from the budgets of current projects. With regards to the latter, there will be a direct cut of $200 million, while the remaining $380 million will be saved by optimizing spending."
On Friday, the Nebraska Supreme Court upheld the pipeline’s route through Nebraska while the U.S. House of Representatives voted to approve the project following Senate Energy Committee action. Prior to the release of the Nebraska Supreme Court decision, Michael Whatley (NGP Photo) of the Consumer Energy Alliance (CEA) appeared on Omaha’s KMTV to preview what to expect from the courts and what implications a decision would have. Following the decision, CEA issued a statement and spoke to several networks, including Nebraska Public Radio. Later on Friday, CEA issued a statement of support following the House’s vote to approve the project by a strong bipartisan majority, which was picked up on Omaha’s WOWT. (Note: We have long associated ourselves with CEA and other NGOs advocating reasonable, 'all-of-the-above' energy development policies and projects for North America. In fact, we believe that together such groups represent the common-sense, public interest 'sweet spot' creating the best blend of economic development, environmental conservation, job creation, and consumer benefits. -dh)
KTUU Television. (See story left column) The agencies in charge of six "mega projects'" that were put on hold in December by Gov. Bill Walker submitted reports this week outlining the operating costs and potential consequences if work is delayed or stopped permanently. The projects include the Ambler Mining District, the Juneau Access Road, the Susitna-Watana Hydro Project, the Knik Arm Bridge;, the Alaska Stand Alone Pipeline; and the Kodiak Launch Complex.
SIGNS OF THE TIMES, fron Schwab: Tpday, Tranocean, Ltd. (RIG) fell 2.30% to a new 52 week low of $15.72. During the last 52 weeks, RIG's price has ranged from $48.53 on January 10, 2014 to today's low of $15.72. Additionally, over the last 12 months, RIG has decreased 67.59% while its peers in the Oil & Gas Drilling industry decreased 47.73%.
TODAY'S ENERGY IN DEPTH ENERGY LINKS:
HF: New York, California and the perils of ignoring science. San Jose Mercury News,EID’s Dave Quast. Recent developments in the debate over hydraulic fracturing (fracking), however, show that these two states have fundamentally opposite approaches to leadership from Democratic governors. Gov. Andrew Cuomo of New York didn't lead, but rather followed when his Health Commissioner announced that the state would continue its ban on fracking. This despite the fact that the state's Department of Health couldn't find evidence that fracking is harmful.
The debate about fracturing must be based on sound science. Times Record News, column. Hydraulic fracturing has been accused by environmental groups of everything from polluting water supplies to contaminating the air to causing cancer to inducing earthquakes. Dr. Dan Hill, head and professor and Noble Chair of the Harold Vance Department of Petroleum Engineering at Texas A&M University, wrote a column that appeared in the Bryan/College Station Eagle on Dec. 30 that warned consumers “to keep an eye out for claims masquerading as ‘science.’”
The Myth of the Carbon Investment ‘Bubble’. Wall Street Journal, op-ed. Buzzwords about “stranded” and unburnable assets are making some investors anxious. The carbon-bubble movement is also putting pressure on endowments, foundations and pension funds to divest fossil-fuel equity holdings. Yet is the carbon-based investment risk real or is it part of a cry for action on climate change? Look closely and financial-market realities deflate the carbon-bubble theory.
U.S. Drivers Start 2015 With Cheapest Gas in Six Years. Bloomberg. Drivers paid an average of $2.2021 a gallon for regular gasoline at U.S. pumps last week, the lowest level for this time of year since 2009, according to Lundberg Survey Inc. U.S. oil output rose to 9.13 million barrels a day in the week ended Jan. 2, after reaching 9.14 million Dec. 12, the highest level in weekly Energy Information Administration data dating back to 1983. U.S. production has increased 66 percent in five years as companies have used horizontal drilling and hydraulic fracturing to tap into hydrocarbon-rich layers of underground shale rock.
NY shale ban to have little impact on national supply. Associated Press. New York's recent decision to ban fracking is hardly seen as a big loss for the nation's production of natural gas. That's because scientists say New York's available reserves of natural gas in the sprawling Marcellus Shale are minuscule compared to what can be extracted in other states. Penn State University geologist Terry Engelder estimates that the entire Marcellus Shale region has 127 trillion cubic feet of commercially viable shale gas reserves, mostly in Pennsylvania and West Virginia.
Saudi prince: $100-a-barrel oil 'never' again. USA Today, Q&A. Saudi billionaire businessman Prince Alwaleed bin Talal told me we will not see $100-a-barrel oil again. The plunge in oil prices has been one of the biggest stories of the year. And while cheap gasoline is good for consumers, the negative impact of a 50 percent decline in oil has been wide and deep, especially for major oil producers such as Saudi Arabia and Russia.
Will The Keystone XL Ever Be Built?
James R. Halloran, Independent Energy Analyst
Most of the readers know we deal with trends, not forecasts. We have only made three forecasts that involved “a rate and a date” in fifteen years; our record is 2-1, and would be perfect if natural gas had moved $0.10 higher in 2013. However, we have gone out on a bit of a limb with two forecasts recently. The first one is well known:The Keystone XL Pipeline, at least the five feet that crosses the US/Canadian border, will not get built. Ignore the headlines coming out of the Beltway these days; they are just smoke and puffery. Save the time otherwise spent on that topic for something more rewarding. Our position is stated here:
With Overwhelming Citizen Support, Keystone XL Can Be Approved
Don't underestimate the effectiveness of Alberta Premier Jim Prentice who is intent on lobbying Washington!
Our esteemed friend, reader and energy expert, Jim Halloran, has presented a logical view of the future of Keystone, assuming the President believes he can get away with continuing to block the future of that pipeline / lifeline (Yes, it could be an economic lifeline to tens of thousands who need good jobs).
President Obama will deliver the 2015 State of the Union Address on Tuesday, January 20, 2015. He will likely try to tout economic improvements which are more due to the oil and gas shale phenomenon (on mostly private property), than on his leadership.
The Consumer Energy Alliance urges its members -- as we urge our readers -- to call U.S. House of Representatives Members TODAY in support of H.R. 3, “The Keystone XL Pipeline Act.” The bill will give congressional approval of the Alberta-to-Texas, crude oil Keystone XL pipeline that has been under review for more than six years. The U.S. House of Representatives is expected to vote on the legislation TODAY, January 9, 2015.
Yesterday, the Consumer Energy Alliance (CEA) sent a letter to House Leadership expressing support for the legislation. Please refer to CEA’s letter for assistance in helping to draft your own letter to members of the House of Representatives. Also, refer to BuildKXLNow.org, for more information.
You might also be interested in the Senate's action on Keystone yesterday. Scroll down to the 1-8-15 page for the video review of Senator Lisa Murkowski's Energy Committee Business Meeting.
With a lot of bipartisan support from Congress, the President will find it harder to continue blocking Keystone XL.
We may not be able to change his mind, but a strong show of support could certainly put pressure on democrat candidates for 2016 elections to urge White House approval.
And if, even then, we fail, we would at least have done our best.
Thank you for your column, Jim; truly, it is a wake up call of what is likely to happen absent overwhelming citizen action! -dh
“Will the northern portion of the XL project get built any time soon?” The answer, in our opinion, is decidedly NO.
The environmental lobby (in England this amorphous set of interest groups is referred to as the “Green Blob”) has drawn a line in the sand to keep this pipeline from ever seeing the light of day. Fighting XL has become a Line of Business for many of them, with its own ongoing fund-raising group. They have a great playbook ready to go, to tie XL up with litigation and the aid of various government agency rules. The game is to tie it up as long as it takes to defeat it. This effort reinforces future “lines of business” when the Green Blob decides to take a stand. It is highly likely they can tie it up for a further seven years or so, by which time the market will have found ways to deal around its absence.
But we also believe Obama will never approve it, part of his “legacy” (most would call it narcissistic petulance). He would not have time to do so, anyway, between golf games, schmoozing with billionaires, and screwing up foreign policy. But even if he were to approve it, the Greens would then take over in court, and it will not get built.
The second forecast is known by fewer people, but I have a record of it with certain people (Nick and John, you are the source for the truth). I went on record in early December that the Energy sector of the market, as represented by the XLE, would hit its cycle bottom on December 15, 2014. There is an historical reason for the date, which I will share later if this works out. So far, the forecast is holding. The second part of the forecast is to be overweight energy in 2015. Looking back on the markets over the years, energy has occasionally finished last among the sectors, but it has never done it two years in a row. That does not mean it bolted to the head of the pack the following year, but it made out well in the trailing year, except for 1998-99 (the Dot-com Era). After that exception, it took off for several years in row.
Energy was last in 2014 even before crude oil tanked in the fourth quarter; cutting the price in half was just the cherry on the sundae. See the chart below for commodity behavior.
(Graph is being reformatted for insertion here....)
Attached is a note from Sanford Bernstein about the market rebounds for the Energy sector over the years. Take a look at Exhibit 2, which shows that it has been a long time since Energy has been this small a relative component of the market (below 10%). As a bet on a rebound, it has a least good set of odds in its favor.
What does this mean for oil prices? That is a subject for other notes. But on “follow the money” basis, we like the possibility that enough trends have spotted by observers that they will form a decent recovery over the next 18-24 months (the market is generally about nine months ahead of an actual recovery in business operations).
The Bottom Line: We do not know where oil (and natural gas) will bottom out. But we suspect that the market is telling us the seeds of a shake out of the weak is underway, which will help a decent rebound.
The flows into Energy are getting ahead of the price increase; see the note below.
Investors betting oil will rebound from the lowest prices in 5 1/2-years poured the most money in more than four years into funds that track crude.
The four biggest oil exchange-traded products listed in the U.S. received a combined $1.23 billion in December, the most since May 2010, according to data compiled by Bloomberg. Another $109.9 million was added this month through Jan. 5.
Investors are piling into oil ETFs even after West Texas Intermediate crude, the U.S. benchmark, tumbled the most since 2008 last year amid signs of rising supply and weak demand. Shares outstanding of the four funds surged to the highest since 2009.
“Commodity investors can be contrarian investors,” said Matt Hougan, president of San Francisco-based research firm ETF.com. “There are a lot of true believers in the commodity space. A lot of people are attached to the idea that oil’s natural price should be $100, not $50.”
The U.S. Oil Fund, the biggest oil ETF, attracted $629.9 million in December and $100.4 million so far this month. The fund, which follows WTI prices, added 1.8 percent to $18.369 yesterday on the New York Stock Exchange.
The number of U.S. Oil Fund shares on loan to short sellers was 3.93 million on Jan. 5, down from as high as 9.53 million last month, data compiled by Markit and Bloomberg show.
Money is pouring into oil ETFs even as commodity-linked index liquidations surged to a record $17 billion in the first 11 months of last year, Barclays Plc said in a report yesterday. Total commodity assets under management fell to $276 billion in November, the lowest since early 2010, according to the bank.
The four funds also include ProShares Ultra Bloomberg Crude Oil, iPath S&P GSCI Crude Oil Total Return Index ETN and PowerShares DB Oil Fund. They had 171.6 million shares outstanding as of Jan. 6, the highest since March 2009, according to exchange data compiled by Bloomberg.
WTI futures slid below $50 a barrel for the first time since April 2009 earlier this week. The benchmark, which tumbled 46 percent in 2014, climbed 39 cents, or 0.8 percent, to $49.04 in electronic trading on the New York Mercantile Exchange at 2:19 p.m. Singapore time.
Oil has slumped as U.S. production grew to the highest in more than three decades and the Organization of Petroleum Exporting Countries kept its output above quota for a seventh month in December. OPEC, which pumps about 40 percent of the world’s oil, decided to maintain its output target at 30 million barrels a day at a Nov. 27 meeting in Vienna.
The CBOE Crude Oil Volatility Index, which measures oil price fluctuations using options of the U.S. Oil Fund, dropped to 53.25 yesterday after reaching 57.67 on Jan. 5, the highest since October 2011.
Keystone XL Status Release From Senator Murkowski's Office Today:
Nebraska Supreme Court Decision Removes Last Excuse for Delay
WASHINGTON, D.C. – U.S. Sen. Lisa Murkowski, R-Alaska, today issued the following statement on the Nebraska Supreme Court ruling upholding the state’s approval of the current Keystone XL pipeline route through the state.
“Today’s court decision wipes out President Obama’s last excuse,” Murkowski said. “He’s had six years to approve a project that will increase U.S. energy supplies and create closer ties with our nearest ally and neighbor, and he’s refused to act. Regardless of whatever new excuse he may come up with, Congress is moving forward.”
Note: Please do not reply to this email. This mailbox is unattended.
For further information, please contact Robert Dillon.
Visit our website at http://www.energy.senate.gov/public/
11-7-14 Alaska Governor Acts On Gasline And Legislators React - President Makes Preemptive Attack On Keystone XL
ADN by Dermot Cole. Gov. Bill Walker (NGP Photo) took a major step toward revising the way the state is dealing with a proposed gas pipeline by removing three members of the Alaska Gasline Development Corp. board and instructing two commissioners not to sign a secrecy pledge proposed by the Parnell administration. (Comment: We do not know enough about all the circumstances to comment on the rightness or wrongness of the Governor's action or legislative reactions. We do observe that decision makers in a time of fiscal crisis would probably be well advised to bend over backwards to be cordial and considerate in their interactions. The fiscal challenge descending upon Alaska and her citizens will be difficult enough to confront with a united team and much harder to resolve successfully if we are divided. -dh)
Calgary Herald by Stephen Ewart.
Commentary: Preemption of Due Process and Erosion of the Rule of Law.
We have seen the current, Administration consistently erode the rule of law.
The EPA has acted to preemptively kill an Alaska mining project, on valid Alaska state leased ground, before the proponents filed for the first permit, on the basis of an EPA-imagined development scenario, before any public hearings, findings of fact or legal record could be assembled.
This is a horrible infringement on America's constitutional protection of due process and the rule of law which it protects.
The precedent the EPA is trying to establish could provide hostile federal agencies with a new tool for stopping state, municipal, agricultural, recreational, mining, commercial fishing, manufacturing, transportation, home building projects on federal, state, municipal or private land...anywhere, anytime.
Similarly, the Administration has sought, unsuccessfully, to block development in Alaska by proclaiming vast areas should be protected for certain species when the populations of those species are increasing (i.e. Steller Sea Lion, Polar Bear.)
In the case of Keystone, the President has blocked State Department approval of the project following valid, due processes which cleared the project.
Now, when the Congress seems poised to introduce Keystone enabling legislation, the President announces intent to veto any such legislation. This is more clear and present evidence of willful disdain for the spirit if not the precise definition of due process.
Through such action in the energy business, together with evidence in other federal jurisdictions (i.e. Overreaching Executive Orders, Justice Department-selective enforcement, IRS-targeting non-profits, State Department-Benghazi, etc.), one must conclude the country is dangerously close to losing constitutional freedom and the rule of law reputation for which it was once so well regarded.
Energy company shareholders are among the most affected by a dilution of due process when the rule of law is replaced by rule of men with political agendas.
The White House warned Tuesday that U.S. President Barack Obama would veto a new Congressional bill to have the Keystone XL pipeline built arguing there is a well-established process to review the controversial cross-border project.
Almost seven years after filing its application for a 830,000 barrel a day oil pipeline, TransCanada chief executive Russ Girling expressed exasperation over the latest setback.
“The review process for Keystone XL has been anything but well-established. We are well over the six-year mark reviewing the final phase of Keystone with seemingly no end in sight,” Girling said in a statement after... (More here)
Canadian Press/Global News. Alberta’s premier remains hopeful about the Keystone XL pipeline despite word that U.S. President Barack Obama may veto the project. Prentice says he will travel to Washington within the next month to let people know that Keystone is in the best interests of Canadians and Americans alike.
Jim Prentice (NGP Photo) says there is broad public and political support in the United States for the pipeline that would carry Alberta bitumen to the U.S. Gulf Coast.
Globe & Mail. Quebec’s energy regulator is giving the thumbs-up to TransCanada Corp.’s Energy East pipeline, calling the plan “desirable.”
The $12-billion pipeline between Alberta and New Brunswick aims to connect western crude with eastern refineries and new markets across the Atlantic.
TODAY'S Energy In Depth News Links:
Weds., January 7, 2015
- EID-National: API’s State of American Energy address and report underscore bright future ahead – if policy-makers do their job (1/6)
- EID-Illinois: Unlike New York, Illinois is helping its economically challenged regions by moving forward with shale (1/6)
- Guest post from BakerHostetler: Cuomo’s decision on HF doesn’t appear to be based on science – or the law (1/6)
API chief focuses on oil exports, KXL in annual address. E&E News (subs. req’d). Throughout his remarks, Gerard touched many times on the need to move forward in approving construction of the Keystone XL pipeline from Canada. Describing that approval as "low-hanging fruit," he expressed disappointment at news that the White House said it would likely veto a KXL approval bill introduced yesterday by Sens. John Hoeven (R-N.D.) and Joe Manchin (D-W.Va.). "The American public is frustrated and confused by this indecision," Gerard said. "They say to themselves, 'Wait a minute, there's 42,000 jobs here and we can't make a simple decision?' So, longer-term, I believe Keystone is ultimately going to get done."
Democrats must respect the power of oil and gas. Houston Chronicle, op-ed. Oil and gas is no longer a game reserved for Texas wildcatters. Shale can be found easily in blue states and red states, and politicians all along the aisle should have trouble finding bad news in fracking's gifts of job growth, affordable fuel and strength abroad.
Industry benefits from transparency about HF fluids. The Oklahoman, op-ed. Baker Hughes, an energy firm in Houston, is about to make history. It just pledged to disclose the chemical makeup of its hydraulic fracturing fluid. Fracking fluids are safe. And the public deserves to know what goes into them. That’s why I firmly support fracking disclosure laws.
Oil prices will recover, but market could behave chaotically. Houston Chronicle. In a balanced market, however, the oil industry simply cannot produce all of oil the world needs for $50 a barrel or less. That's the good news for Houston, but the bad news is that companies will be under intense pressure to produce oil as cheaply as possible because, since November's OPEC meeting, the world lacks a regulator, or swing producer, to stabilize the market. If left to its own devices, the invisible hand of the market will be stirring a pot of chaos in 2015.
U.S. oil production will be falling by end of 2015. Reuters, column. In the short term, U.S. oil production is set to continue rising because there is still a backlog of wells waiting for fracturing crews and completion after the record drilling during the first ten months of 2014. In North Dakota, for example, there were around 650 wells waiting on completion services at the end of October 2014 because drillers had outpaced completion crews, according to the state's Department of Mineral Resources.
Low oil prices leave U.S. shale players cautious. UPI. Energy companies working in U.S. shale basins announced plans to trim capital programs for 2015 because of the steep decline in oil prices. The price for West Texas Intermediate crude oil, the U.S. benchmark, dipped below the $50 mark for the first time in more than five years Monday. Globally, oil prices have lost half of their value since mid-June 2014, forcing major oil and gas companies to cut back on spending for this year.
Anti-Cuadrilla group's leaflet misleading, says watchdog. The Independent. In a setback for the anti-fracking lobby, the Advertising Standards Authority (ASA) found that sections of the leaflet from the Residents Action On Fylde Fracking (Raff) protest group misinterpreted scientific data around shale gas extraction and exaggerated the size and scale of planned fracking operations in the region.
Junior explorer pulls plug on Ukraine. UPI. The economic climate in Ukraine is no longer conducive to continue investing in shale natural gas opportunities, producer JKX Oil & Gas said Wednesday. "The board of JKX has decided that the combination of Ukrainian Government-imposed restrictions on selling its gas to industrial clients and the punitive rate of gas production tax requires the company to suspend its planned 2015 capital investment program in Ukraine until the economic parameters for investment improve," it said in a statement.
Protests Hit Southern Algeria Over Shale. Associated Press. Protests in Algeria's remote and sparsely populated south over efforts to exploit the country's vast shale gas reserves spread to the regional capital Tuesday, the state news agency reported.
New report calls for better oversight of injection wells. Bakersfield Californian. In a report with strong implications for Kern County's oil industry, an environmental activist group called Tuesday for changing the process for exempting aquifers from federal groundwater protections. An oil industry trade group, the California Independent Petroleum Association, was dismissive of the report, noting there is no evidence of waste being injected into drinking water supplies.
5 things to know as the Colorado legislative session begins. Associated Press. Colorado lawmakers begin the 2015 session on Wednesday. Here's a weekly look at what's coming up: Fracking - Another big debate involves whether any new regulations are needed over hydraulic fracturing, or fracking. Gov. John Hickenlooper assembled a task force to look at how to settle land-use clashes among homeowners, local governments, and the energy industry. The task force's charge is to give lawmakers recommendations, but whether anything happens remains to be seen.
Windsor braces for industry slowdown. The Coloradoan. While many Northern Colorado residents are enjoying the country’s falling gas prices, Windsor officials say the anticipated slowdown in tax revenue from oil and gas companies will hamper them this year. Those companies will likely scale back their operations around Windsor, Town Manager Kelly Arnold said during a work session Monday. Fracking activity in the area may not pick back up until 2016.
What new fines would have meant in Windsor spill. The Coloradoan. An oil and gas operator who spilled 7,500 gallons into the Poudre River last year would have faced 15 times the financial penalty under a new fine structure passed this week. The Colorado Oil and Gas Conservation Commission approved a maximum penalty of $15,000 a day for "the most egregious violations" in a Monday hearing — up from a previous maximum fine of $1,000 per day.
Oil price plunge imperils La. jobs — but when? The Advertiser. In Louisiana, initial claims for unemployment insurance in mining — many oil and gas jobs are recorded as mining — totaled 227 in December, higher than in any previous month but not much higher than claims recorded in January 2014. Guarisco said oil and gas employment appeared to remain robust in December, as many oil and gas jobs must be done no matter the price per barrel.
Denton anti-HF activists to make appearances in St. Tammany Parish. Times-Picayune. Two people whose efforts helped enact a ban on fracking in Denton, Texas, will be in St. Tammany Parish this weekend for a party and a symposium about hydraulic fracturing. The citizens group Tammany Together is putting on the events.
Penn students jump into the shale fray with a new technology. NPR. One of the pressing questions regarding fracking is whether or not the chemicals used to help pry the gas from tight rock formations like the Marcellus Shale leaks or migrates to drinking water supplies. Imagine if you could determine whether fracking caused ground water contamination using a thin strip of single carbon atoms. That’s what two seniors studying at both the University of Pennsylvania’s Wharton school and its bioengineering department, are trying to do. Teddy Guenin and Ashwin Amurther are finalists for a $5000 prize through the University.
Analyst predicts gasoline rebound despite oil's plunge. Tribune-Review. Gasoline prices likely will rebound over the next few months and rise above $3 per gallon by May, despite the continuing drop in global oil prices, a national analyst predicted Tuesday. Oil prices driving much of the pump price dropped by half because of increased supply from shale producers, tepid global demand and a decision by exporters such as those in the OPEC cartel to push prices down by maintaining production.
US Forest Service accepting comments on Va. pipeline path. Associated Press. Friday's the deadline to comment on a proposed natural gas pipeline whose route includes the George Washington National Forest. The multi-billion-dollar pipeline is proposed by Dominion Resources and other energy companies. It would run from West Virginia, through Virginia and into North Carolina. The proposed $5 billion, 550-mile pipeline would transport natural gas collected through hydraulic fracturing, or fracking, from Pennsylvania, Ohio and West Virginia.
Shale is proving beneficial. The Star Democrat, LTE. In her guest comment, “Fracking may prove to be harmful to public’s health,” Rebecca Rehr presents the potential hazards of hydraulic fracturing without balancing them with the benefits. Of course there are health and environmental hazards to extracting oil and gas from tight shale and other rock formations. However, horizontal drilling and fracking have dramatically increased U.S. production of oil and gas, leading to benefits both here and globally.
Natural Gas Price Plummets, But Tax Still a Wolf Priority. Philadelphia Magazine. States that depend on energy resources to power their economies and budgets are tightening their belts as the prices of oil and natural gas fall, but that won’t — and maybe shouldn’t — stand in the way of a new fracking tax in Pennsylvania, officials say.
Natural-gas home-heating rates low for January. Cleveland Plain Dealer. Cold January weather has arrived, but rates for natural gas have fallen. Both Dominion East Ohio and Columbia Gas of Ohio are posting standard rates that are lower than those in December and lower than year-ago January prices.
Small earthquakes in Mahoning County. Akron Beacon Journal. Shawn Bennett, of the Ohio Oil and Gas Association, said, “There is no reason for hysteria” regarding the new report. Ohio is working closely with researchers in other states on how “best to mitigate such events from happening in the future,” he said. NOTE: Houston Chronicle/Fuel Fixalso reports.
4 mild earthquakes startle North Texas; no damage reported. Express-News. Four small earthquakes have rattled North Texas hours apart. No damage was reported from Tuesday temblors. The U.S. Geological Service plotted the epicenters of the four quakes to northeast Irving, a Dallas suburb. At least two could be felt throughout the Dallas-Fort Worth area.
Low gas prices means job losses. KENS5. The output of the Eagle Ford Shale, recently slipped for the first time in more than a year. The state reports production at the shale dropped by about 2,000 barrels in December. A local economics professor from UTSA said cheap gas prices could mean job losses since a significant part of the economy is driven by oil and gas production.
Other references "A Deal Is A Deal", etc.:
Andy Holleman Dave, I find one part confusing....you say " The piece quotes some who contend that those supporting SB 21, Alaska's oil tax reform law, misled the public. Any Alaskan who trumpets blame undermines cooperation and defies the public interest. "
There's no question that some of the supporters of SB 21 mislead people. There's no question some of the opponents of SB 21 misled people.
Why is seeking clarity on that in defiance of the public interest?? Especially when you close with a warning against false prophets.
Would it not be in the public's best interest, going forward, to know who was truthful and who was not?
And for the record, I'm not talking about folks that made predictions that were labeled as such, but people that implied things that weren't true.
Dave Harbour You raise valid points, Andy. I should have more clearly stated my intent: "in this critical year we should focus on cooperative solutions rather than who did what to whom in the past. While investing our full energy to find solutions in 2015, we should distinguish between actors seeking personal gain from those seeking the best outcome for all Alaskans." Thank you for the nudge to clarify.
Dave Harbour Good comment, Steve. In fact, over the years I have referred to your analysis a number of times, until later information replaced it. I believe that as of 2012, the unfunded PERS/TRS liability was in the $11.8 billion range following some annual payments in the $250-300 million range. Then, in the last session the liability was 'paid down' by $3 billion. I'd hesitate to guess at today's actual number -- especially when state offices are closed right now -- but believe it is likely to be between $8.5-9.5 billion. Next week, I'll try to run the current -- or latest available -- number down. In any case, the number is big and offsets most of the hope some may have for state savings accounts (i.e. Probably valued in the $12.5 range today following the $3 billion payment to PERS/TRS). If Alaska burns through savings to subsidize unsustainable operating costs, the only way it can keep 'full faith and credit' with retirees is to dip into the Permanent Fund to satisfy unfunded liabilities. That's why I think all of us reading this blog believe this year is so critical. If big and cooperative decisions are not made to change the trend line now, and absent the appearance of one or more economic miracles, the day of reckoning surely lies just around the corner. With that mission and challenge in mind, one can see the tensions growing (i.e. interests of operating fund constituents vs. state retirees; interests of subsidy beneficiaries vs. taxpayers; interests of today's citizens vs. their childrens' interests; interests of obtaining higher short term taxes from oil, mining, tourism, fishing, etc. companies vs. provding a secure investment climate that invites their investment and job creation over time.) This is why I do not envy the Governor or Legislature or Mayors or Wealth Producers or Government Program Beneficiaries; for 2015 is sure to be a historical transition to a new Alaskan economy. A year from now, it will be interesting for us all to consider these challenges and weigh them against our successes. Hopefully, we will have made our children proud. Dave
|Today, we ponder Alaska's 2015 challenges below -- including less capability to fund energy projects. We also sympathize with our Canadian friends. The Calgary Herald's Deborah Yedling said of TransCanada's Russ Gurling that, "three fronts consume Girling’s time and energy — the Energy East file, an activist shareholder and, of course, the Keystone project."|
Is Alaska beginning a new year of acrimony or accomplishment?
Yesterday's Alaska Dispatch piece by Dermot Cole pretty well summarizes the difficult budget issues and political pressures faced by North America's most economically dependent oil & gas producing state.
As the new year begins, so does the start of what may soon evolve into a contentious, new Legislative session.
Politico by Hillary Flynn.
Alaska runs on oil — its economy is more dependent on it than that of any other state. With no sales or personal income tax, the bulk of state revenue is tied to natural resources.
At the same time, the state woefully misread the direction of oil prices, predicting they would remain at over $100 per barrel for fiscal 2015. They are now below $60.
For now, they are counting on $14 billion in rainy day funds — double those of any other state. But rating agency Moody’s Investors Service, financial analysts and others
NY Times by Manny Fernandez & Jeremy Alford...“The crunch is coming,” said Gunnar Knapp (NGP Photo), a professor of economics and the director of the Institute of Social and Economic Research...."
Washington Post by Niraj Chokshi. ...Alaska, more than any other state, is threatened by the low prices. Moody’s Investors Services, the credit rating agency, on Tuesday revised its outlookfor the state from stable to negative, noting that the drop in oil prices “now threatens to rapidly and significantly reduce the state’s budgetary reserves.”
“Alaska is far more vulnerable than any other U.S. state...."
On January 31, 2012, Governing asked, "Will the good times last?": "High oil prices are a boon for Alaska, whose credit rating recently went up to the coveted triple-A level. But waning oil production, unpredictable prices and looming pension costs remain challenges." (Comment: Politicians ignored the obvious. -dh)
Readers may also track this issue on Alaskans for Sustainable Budgets....
During the session, beginning on January 20, lawmakers and the new governor face an unexpected decline in the value of oil upon which is based about 90% of Alaska's state operating budget.
Constituents -- not just government -- feel the impact, too. Over a third of the entire economy rests upon dependency upon and unstable foundation of volatile, world oil prices. (Note our belief that government dependency on commodity prices is more dangerous than private economic dependence on commodity production. The former typically makes up for lost taxes by increasing taxes -- further inhibiting economic investment and vitality -- while the latter makes up for diminishing revenue by undertaking efficiency measures.)
Soon, one can expect rating agencies to begin auditing state and local governments, along with publicly traded companies in Alaska. Financial analysts throughout the investment world are preparing new reports for their clients. Agencies of government dependent on revenue bonds and general obligation bonds -- at certain, low interest rates and favorable 'coverage' requirements -- will be under increased scrutiny that could affect consumer costs in a number of areas, including state capital projects, municipal services and monthly utility rates.
Alaska's multi-billion dollar deficit overshadows losses occurring in all other oil and gas producing states and provinces in North America, which could stimulate rising political acrimony.
Elected officials, as we have seen nationally and locally, tend to err on the side of overspending.
National overspending leads to printing fiat paper dollars that taxes citizens by ultimately devaluing their money as prices rise. State and federal overspending causes overtaxing temptations. Both overspending and overtaxing in local governments tax the future of citizens as politicians strive to fund today's wants.
Unlike Washington, local governments cannot create new money out of thin air. They must collect it in direct taxes or by borrowing it and agreeing to pay lenders interest rates influenced by rating agencies, upon whose expertise investors must rely.
Alaska is seeing the confluence of these issues today as its unsustainably high budget -- the highest per capita in America, twice as high as US federal per capita spending -- is under attack by low oil prices. This income deficiency leads to higher deficits, a rapid depletion of government savings accounts, and a sure-fire appointment with insolvency.
Will Alaska leaders this year create new taxes, cut spending or kick the can down the road again, bringing savings accounts down to new lows? Or, more likely, will they try to create a combination of the above?
The republican-led legislature, with the former Governor, passed legislation to reform and moderate one of the most onerous oil tax regimes in the free world. Added to Alaska's tax disincentive to invest are Alaska's high labor rates, difficult climate, proximity to markets and logistical handicaps. The objective of the tax reform, adopted under provisions of Senate Bill 21 (i.e. SB 21) was to increase investment leading to higher production over time and a more sustainable fiscal regime. Unfortunately, not much was done to moderate spending, contrary to the suggestions of a state university think tank, the Institute of Social and Economic research (ISER).
Some democrats, though out-voted on SB 21 tax reform, decided to work with activist environmental and other constituencies to promote a voters initiative that would do an end-run around legislative action, and repeal oil tax reform. Last August, they came close, but lost as voters narrowly decided to stay with tax reform.
Obviously, any enthusiasm investors had for SB 21 tax reform and political stability in the 49th State had to have been diluted by efforts to repeal that reform.
Today, investors must be left with a troubling 4-fold reality that:
1) While oil tax reform passed and survived an Alaska voter's repeal initiative, a new initiative could reappear any day; and
2) Alaska's long-term sustainability depends on the unlikely ability of politicians to cut generous state entitlement programs, not just a few capital projects; and,
3) Alaska's state employee retirement program's unfunded liability of almost $10 billion pretty much cancels out the value of its "rainy day savings accounts". We believe this leaves the State morally--if not technically--incapable of subsidizing the operating budget without tapping the sacrosanct, $50+ billion permanent fund, which, itself, is not the answer to a sustainable government; and,
4) even if those thorny problems are solved, Alaska's wonderful natural resource investment potential still faces volatile natural resource prices and worldwide competition from areas with lower labor rates, more temperate climates, closer proximity to markets and simpler logistical challenges.
Now, Alaska has a new Governor, Bill Walker (NGP Photo-L), who opposed SB 21 tax reform and courted democrat constituencies to win the election against republican incumbent Governor Sean Parnell (NGP Photo-R). Of course, we wish Walker well, but we also realize the difficult policy decisions he must surely see in the path before him.
The ADN news/editorial piece yesterday highlights what could be a coming year of acrimony absent an abundance of courtesy, good-will and recognition of the common challenge we all face.
The piece quotes some who contend that those supporting SB 21, Alaska's oil tax reform law, misled the public. Any Alaskan who trumpets blame undermines cooperation and defies the public interest. The piece also quotes SB 21 advocates who point out that the passage of tax reform takes time to manifest itself into multi-year, multi-billion dollar investment decisions and new projects. (Critique: A reader in another blog later pointed out that to understand the source of the problem we should discuss 'fault'; and, I admitted that I could have been more clear. My point was not to stifle free speech or honest critique but rather, "in this critical year we should focus on cooperative solutions rather than who did what to whom in the past. While investing our full energy to find solutions now and throughout 2015, we should distinguish between actors seeking personal gain from those seeking the best outcome for all Alaskans." -dh)
What's The Answer?
Our first hope is that other oil producing states/provinces will learn from Alaska that a sustainable economy is, first, difficult but, second, possible. (Subscribe to Petroleum News Bakken)
It is difficult because officials elected by human beings tend to want to promise and deliver more than they should. But sustainable oil economies are possible when the voters demand responsibility.
Spending could be limited by a constitutional mandate using an effective population, CPI formula with a savings requirement and an emergency spending provision. Spending could also be restrained if contitutional reform limited industry sector tax revenues to some per capita or operating budget percent limit...again, with reasonable savings and emergency spending provisions.
If government signals investors that it is committed to a reliable, capped amount of tax revenue from various tax-vulnerable industry sectors, tax paying investors can more freely invest with a reasonable guarantee of long-term returns.
The primary beneficiaries of responsible government policies, the citizens, may then have confidence that their own taxes, jobs, reasonable but restrained government programs and economic dreams can be sustained with honest, hard work.
Some Alaskans may hold out hope that the state's ponderous, per-capita government could survive by virtue of a quick reversal of oil prices. But there is a problem with that hope. The fundamental problem is that even with last spring's higher prices, Alaska's oil-dependent operating budget still needed billions from savings when that budget was based on $105/Bbl oil.
So what is Alaska's current, best hope for a sustainable economy? That's the job of elected officials. That's why they were elected. Do we see among them public spirited, dedicated, unselfish, peace makers who will work cooperatively with each other to solve a common problem? Or, will we see them take up arms and seek to use the state's economic problems to leverage political self interests as a fragile economy crumbles?
We offer for our readers' consideration a possible solution, a concept, in the box to the left. But, as with all great undertakings, the outcome depends on the integrity, courage, creativity and diligence of real leaders -- which points to this wise counsel of old:
Matthew 7:15. "Beware of false profits, who come to you in sheep's clothing, but inwardly they are ravenous wolves. You will know them by their fruits. Do men gather grapes from thorn bushes or figs from thistles? Even so, every good tree bears good fruit, but a bad tree bears bad fruit. ... Therefore, by their fruits you will know them."
Amen, dear reader....
TODAY'S Houston Chronicle Energy Stories:
Our Commentary: "Enlightened Self Interest vs. the Public Interest: Is Global Warming and Ocean Acidification Science Reliable" is being rescheduled. -dh
Juneau Empire Editorial: Thumbs up to fulfilling promises. On Friday, Gov. Bill Walker (NGP Photo) issued an administrative order to halt work on six of Alaska’s biggest construction projects. During his campaign for governor, Walker promised to cut “unnecessary” studies as a way to reduce the state’s expenses. As most of those six projects are still in the study phase, we shouldn’t be surprised that Walker is considering them for the chopping block. We might believe those projects are still worthwhile, but we should give credit where credit is due — Walker is doing nothing less than fulfilling a campaign promise. Background.
|Petroleum News by Gary Park.
Alberta Premier Jim Prentice (NGP Photo) is applying a form of water torture by delivering the grim news in a steady trickle.
In preparing Albertans for a round of harsh spending cuts and possibly the unthinkable - higher taxes - he has estimated his government faces a revenue shortfall of C$16.2 billion in the next three fiscal years unless there is a dramatic recovery in oil prices.
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