Is EPA A Lawless Agency?
We are sorry to hear today that our friend and former Alaskan, FERC Commissioner Phil Moeller, will be leaving the agency at the end of this month. However, FERC's loss, in our opinion, will be another organization's gain.
We offer him our very best wishes. -dh
We've had significant evidence over the last seven years that the EPA and other agencies reporting to the current administration regulate Americans and their businesses outside of the rule of law and due process.
The report we provided readers yesterday substantiated that observation.
Here, today, is an official comment from the Alaska Miners Association. -dh
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International Business Times by Maria Gallucci. The Trans-Pacific Partnership could boost exports of some U.S. energy supplies by making it easier to ship and sell the fuel to Pacific Rim nations. The biggest recipient likely would be Japan, which is eyeing deliveries of American liquefied natural gas to replace output from its nuclear power plants.
The 12-nation agreement completed in Atlanta this week is expected to call for the “national treatment for trade in natural gas,” a provision that would lower regulatory hurdles and cut tariffs among members of the free trade pact. If approved by Congress, the TPP likely would require the U.S. Department of Energy to approve automatically all gas exports to the 11 other nations, potentially accelerating LNG exports.
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ADN by Alex DeMarban. A new report offers reasons why Alaska would benefit by buying pipeline builder TransCanada out of the Alaska LNG project, including that it would make an extra $7.4 billion over two decades of operation.
The downside is that without TransCanada, the state would have to pay an extra $7 billion to $8 billion upfront to cover construction and other costs.
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Our respected, mid-Atlantic Oil & Gas analyst friend tells us today that weather trends do not work in the favor of natural gas prices, as follows:
"Regular readers know our devotion to studying weather patterns, partly because they can have significant impact on energy supply/demand, but mostly because we find it interesting. Every month we forward the monthly Browning World Climate Bulletin. It is without peer both its forecasts and its educational content on the subject.
"For the time-constrained, here is the summary updated fall-into-winter forecast:
"Summary: The strong El Niño is expected to last until spring and fade to moderate through spring. This, combined with the Icelandic volcano should allow rain to return to the South in autumn and produce a cool wet winter in the southern tier of states and a warm dry winter in Canada and the northern tier of states.
"This is not good news for the natural gas market. In fact, it is just about as gloomy as it could get. We should point out that this Bulletin is closely read by commodity traders, given it great track record. This fact is likely a contributing factor to the depressed Henry Hub price (closed at $2.47 today, and the 12-month strip is $2.71).
"For new people to the Bulletin, we urge them to give it at least a quick review. It is a tremendous education about how global weather works. This is NOT a global warming piece; it is about weather."
Statement from the Alaska Miners Association referring to a Cohen Group report issued yesterday, and about which we reported here:
Today, the Cohen Group released a report detailing its findings from an independent review conducted on the Environmental Protection Agency’s actions at the Pebble Project. The Alaska Miners Association has issued a Press Release, attached to this email, with its response:
The Alaska Miners Association (AMA) today welcomed the release of the report of an independent review by The Cohen Group evaluating actions by the U.S. Environmental Protection Agency (EPA) at the Pebble Project and called upon policymakers to thoroughly review the findings to ensure future investment in Alaska.
Faithful readers know we are dedicated to building and maintaining the most thorough archive existing anywhere, documenting the history of Alaska and Northern Canadian natural gas monetization efforts.
Herb Butler's contribution today helps bring us to the current era.
However, we provide here for your reference, links to the long and more detailed history of Alaska and Canadian northern gas pipeline and LNG projects.
We are indebted to Herb Butler and the Fairbanks News Miner for providing this Alaska gas project commentary and timeline. -dh
1976: The U.S. Congress passed the Alaska Natural Gas Transportation Act in an effort to encourage the construction of a gas pipeline from Prudhoe Bay to the Lower 48.
1980: A Right-Of-Way license was issued by the Federal Energy Regulation Commission to the Alaskan Northwest Natural Gas Transportation Company. In 2008, that license was voluntarily withdrawn. There are many conflicting opinions why this effort failed to deliver fuel gas to a large U.S. market. The primary reason was the refusal of the oil field producers to provide marketable (high quality) natural gas from the Prudhoe Bay field.
1999: The Alaska Gasline Port Authority was formed. AGPA is comprised of the three boroughs, Valdez, Fairbanks North Star and North Slope. The mission of this group is to develop a liquefied natural gas export system based in Valdez. The source of fuel gas is from the Prudhoe Bay oil field.
2003: The state of Alaska formed the Alaska Natural Gas Development Authority, whose mission is to develop a natural gas pipeline from Prudhoe Bay to Valdez and a spur line to Southcentral Alaska.
2004: The U.S. Congress passed the Alaska Natural Gas Pipeline Act to resolve or clarify many issues attendant to the permitting of an interstate Alaska natural gas pipeline. ANGPA also provided an $18 billion loan guarantee and some tax relief.
2007: The state of Alaska passed the Alaska Gas Inducement Act. AGIA would provide a $500 million matching contribution to the construction of a gas line from Prudhoe Bay through Fairbanks, Delta Junction, Tok Junction and into Canada following the Alaska Highway. Notice that the matching contribution seems to be the only inducement in this vehicle.
2008: TransCanada, a gas pipeline company, was awarded the only AGIA license. TransCanada states their pipeline would not be completed until 2018. Denali Pipeline was created by British Petroleum and Conoco in competition with TransCanada for the AGIA license and continued on with their project after TransCanada was selected by AGIA.
2009: The Alaska Gasline Development Corporation is created by the Legislature to advance the plans for Alaska Stand Alone Pipeline, another plan with no forward momentum.
2011: Denali Pipeline discontinues their pipeline project.
2014: TransCanada terminates the AGIA license but expresses an interest in building a pipeline from Prudhoe Bay to Southcentral Alaska (Nikiski) because of the work already accomplished under the AGIA plan. It is this position that Gov. Bill Walker wants to purchase for $100 million. A definitive plan or project does not exist to deliver high-quality natural gas to the LNG port in Nikiski. The Alaska LNG Project is added to AGDC’s responsibilities.
The Cook Inlet natural gas supply is dwindling at a continuous rate. Fairbanks Natural Gas buys its gas at Point Mackenzie in the Matanuska Valley from Enstar. FNG has had to pass on increasing prices to the local customers in Fairbanks. FNG is unable to expand its distribution in Fairbanks because of Enstar pricing and allocation. The expected shutdown of Cook Inlet natural gas sources will happen by 2020 unless a new gas field is found. At this point, there is no alternative source other than Prudhoe Bay.
FNG is trying its best to acquire quality natural gas in Prudhoe Bay, to no avail. The Prudhoe Bay gas is of extremely low quality because it contains 12 percent carbon dioxide (CO2) and approximately 76 percent methane. FNG cannot produce LNG (frozen methane) at Prudhoe Bay without extracting all of the CO2. This is because CO2 freezes much sooner than methane and therefore causes all kinds of freezing cycle stoppages. FNG and/or their producer must build an extraction system before a freezing system. Then there is the disposal issue. What do you do with all the CO2 that is extracted? FNG was purchased by AIDEA in 2015. AIDEA is spending a large amount of money to build gas storage and distribution systems in North Pole and Fairbanks without a guaranteed source of natural gas.
This is good news to the refineries and the liquid fuel distributors. They have some positive future expectations. We consumers in Alaska are facing a dilemma though. We must contend with a status quo situation well into the next years and maybe even longer. Large fuel oil bills will become even larger in size there is no doubt about that. The natural gas users are facing a grim future. They must think of reverting back to liquid fuel.
Two facades are in place in Alaska.
1. AIDEA has spent a large amount of money on a natural gas supply system in the Fairbanks and North Pole area without any guaranteed source.
2. Gov. Walker wants to pay TransCanada pipeline $100 million dollars for their interest in a pipeline project that does not exist. The Alaska LNG Project is only a plan, just like all the other plans before it. A schedule and budget does not exist. The media has reported proposed costs as high as $65 billion.
Herb Butler is a retired oilfield and refinery engineer who spent decades working in the oil and gas industry in Alaska. He lives in Fairbanks.
More about Timeline
More about Transcanada
- ARTICLE: Alaska governor plans to call for company buy-out in gas project
- ARTICLE: Companies file export application for Alaska LNG
- ARTICLE: Itemized work on Alaska gas line confidential
- ARTICLE: Feds: No more false starts on Alaska gas pipeline
Today, Facebook friends were mulling over the possible benefits of government ownership of Alaskan energy projects. Norway was sited, as it often is these days, as a place where government ownership has produced wonderful results. In fact, it seems that Alaska's governor, based on recent statements, may well be considering using Norway as an example of how Alaska should approach the monetization of its oil and gas resources.
We wrote the following piece today:
"Are Norway and Alaska Identical Twins, or Are They Apples and Oranges?"
"Norway is a sovereign country that, along with its ownership of companies, can and does eliminate costly appeals and delays by activists.
"Alaska is a quasi sovereign state whose energy activities are subject to federal regulatory delays and federally permitted (if not encouraged) due process, sue and settle tactics and "endless" judicial challenges.
"Yes, Norway can balance some of the inefficiency of government ownership by sympathetic government regulation.
"Socializing Alaskan industry produces all of the dangers of crony capitalism and all of the risks of hostile federal government regulation, augmented by costly and in many cases, frivolous social, political and legal activism.
"Norway and Alaska share some things in common, including a northern climate, majestic landscapes and bountiful natural resources.
"That does not mean this state and that country are alike in every way.
"Once again, we are cautioned about comparing apples and oranges.
FOR IMMEDIATE RELEASE
Contact: Miles Baker, VP External Affairs & Government Relations (907) 321-8650
AGDC Clarifies Status of ASAP Project
Federal Environmental Work on In-State Gasline Project Ongoing
September 28, 2015 Anchorage, AK – The Alaska Gasline Development Corporation (AGDC) released a statement today clarifying the status of the Alaska Stand Alone Pipeline (ASAP) project. In the last few days, several media outlets have incorrectly reported that the corporation’s board of directors took action to suspend work on the ASAP project during their September 23rd meeting in Anchorage.
In a prepared statement, AGDC President Dan Fauske said:
The Alaska LNG project continues to be this corporation’s number one priority. However, our board’s direction to management has been clear – continue to maintain the viability and readiness of the Alaska Stand Alone Pipeline (ASAP) project as the state’s backup plan. The corporation is prudently managing the state’s resources by eliminating duplication of effort and cost, but intent on preserving ASAP’s knowledge base and readiness in the event the Alaska LNG initiative does not progress to project sanctioning. At our September meeting, the AGDC board received a progress update from the ASAP team, but issued no directional change to management regarding the project.
In January, AGDC completed FEED and delivered a full Class 3 cost estimate for the ASAP project. The milestone was the culmination of a substantial body of work, conducted over several years and it was achieved on-time and under budget. However, in response to the State of Alaska’s decision to prioritize the Alaska LNG project, the AGDC board prudently adjusted the future work plan, budget and timeline of the ASAP project to bring it into alignment with key Alaska LNG decision milestones. This included postponing additional commercial activities pending an outcome on the Alaska LNG project. With principal ASAP engineering work completed, AGDC has concentrated its work efforts on continuing the U.S. Army Corps of Engineers (Corps) Supplemental Environmental Impact Statement (SEIS) process so that federal permits and right-of-ways for the ASAP project can be secured.
During last week’s board meeting, the ASAP project team confirmed that AGDC filed a revised Section 404 Clean Water Act permit application with the Corps on September 10th and would also be submitting an updated right-of-way lease amendment to the State of Alaska within the next several weeks. The team also highlighted that it has recently posted a new interactive map viewer to the ASAP website in support of the SEIS process. The map viewer allows the public to explore the project’s alignment, geographic footprint, facilities and design components in order to better visualize the project and its potential impacts.
The ASAP project is designed to deliver utility grade natural gas from Alaska’s North Slope to Fairbanks, Anchorage and as many other communities within the state as possible. The project consists of a gas conditioning facility, a 36-inch diameter pipeline from Prudhoe Bay to ENSTAR’s existing gas distribution system near Anchorage at Big Lake; and a 30-mile lateral to Fairbanks.
You'll love this Blog by our Aussie friend; try it here.
Suncor (TSX:SU), Canada's largest energy company, boosted its stake in the Fort Hills oil sands project
ADN by Pat Forgey. The big oil companies that plan to produce and ship North Slope natural gas have agreed to pay $16.5 billion in property taxes on the huge project, but they'll pay them to the state instead of local governments, Revenue Commissioner Randy Hoffbeck said Wednesday.
“This past Monday, employees were informed of organizational changes being implemented over the next several months. At this time, our new structure has resulted in a reduction of some senior leadership positions. Moving forward, staffing levels will be further impacted,” wrote company spokesman James Millar in an email.
NGI Daily by Joe Fisher. Alaska Gov. Bill Walker (NGP Photo) plans to hold a special session of the state legislature next month related to the Alaska LNG project. The main, and perhaps only, topic is expected to be a potential state buyout of TransCanada Corp.'s stake.
|Alaska Journal of Commerce by Tim Bradner.
Alaska LNG Project managers presented an upbeat report on technical progress of the giant gas project in a Sept. 9 briefing to legislators, but also warned of the economic challenges faced.
Steve Butt (NGP Photo), an ExxonMobil official who is manager of the overall project, described the possible complications of an expansion of the pipe diameter requested by Gov. Bill Walker. However, if the expansion were done the goal would be to keep the project on schedule for a 2018 or 2019 construction decision, he said.
Butt said there are about 1,000 people at work on.... More...
A deal would have to occur by Dec. 15 due to provisions of agreements between the state and the pipeline company. Lawmakers have received notice of the special session, which is expected to end by Thanksgiving. More....
Forbes by Brigham A. McCown. Alaska was long at the vanguard of America’s energy industry. At one time the State of Alaska accounted for as much as one-quarter of the entire country’s domestic oil production. Alaska’s vast fields also served as a source of pride – and the backbone of the state’s economy. As production surged, it was common to hear industry men revel in the United States’ diminishing reliance on foreign supplies as they worked rigs up and down regional reserves.
Yet, as energy development in the lower 48 has burgeoned over the past decade, those refrains have waned.... More...
ADN by Pat Forgy.
The North Slope Borough has become fabulously wealthy from taxes on the oil industry and its massive Prudhoe Bay infrastructure. More....
Our Mid-Atlantic Energy Senior Consultant Friend
(Reference this Fuel Fix Story by Collin Eaton)
While Alaska producers are poised to finance and build a gas pipeline/LNG export project, Alaska's new Administration seems to be doing everything possible to delay it into oblivion.
We have commented on these various matters separately over the governor's first year in office; we believe that, this issue cannot be separated from the theme of our consultant friend's article on the left.
As development projects are delayed during this low energy price era, experienced oil industry specialists in many areas -- including gas exploration, production, pipelines, liquefaction and ocean transport -- are being laid off and/or retired.
Our consultant friend has observed that this trend endangers future projects, not because of future oil prices but because of the serious lack of oil and gas specialists needed when demand and higher prices again call for more production -- from highly technical projects.
It is another viewpoint that public and private officials involved in pipeline/LNG projects should bear in mind.
If politicians waste too much time trying too hard to dictate what projects investors should build, how, in what timeframe and with what personnel policies (i.e. as Alaskan politicians tend to do), Alaska's gas pipeline could remain a pipe dream for another, perhaps poorer but wiser, generation to tackle.
-dh (Note: we will immediately correct any factual errors in this or any archived material. Please write us with any additions or corrections. Thank you.)
Wood Mackenzie has estimated that the number of major drilling projects on which the oil industry can make money, given current economics, is down by huge amount (although the numbers are actually a little fuzzy). We have written about this trend several times recently, including our note on diminished North Sea drilling. We do not have access to the complete WM report – their press release is below – but it is still fair make several points about the implications of this trend:
· It will be tough to get to the cost reductions estimated as necessary below, without fudging the numbers. The oil companies already challenge costs in a very disciplined manner for every project, even after it goes FID.
· Given current cash flows, it is probable that a number of projects declared marginally profitable after being put through the cost reduction wringer will get deferred for significant time, or simply mothballed.
· This process will have a cascade effect if it goes on for several years. The longer it goes on, the more the reason for deferral will be lack of qualified
specialists. Prostitution is not world’s oldest profession; the oil industry is. The business lost the bulk of a whole generation through layoffs in 1980s and 1990s. With the layoffs this time around, the talent needed for the next upturn simply will not be there.
· Many of these projects will take multiple years to be developed. The lack of timely response to deal with a supply/demand imbalance will also contribute to greater volatility in the future.
Bottom Line: We have seen this movie before. The monsters involved will be bigger and more convoluted in the current version of the story, but the result will be the same. It will not end well.
Today's Energy Links Are From Larry Persily, Former Federal Gas Pipeline Coordinator
Oil and gas news briefs for Sept. 21, 2015
LNG buyers making progress in push for more flexible contracts
(Platts; Sept. 18) - Calls for increased contract flexibility dominated discussions at the fourth annual LNG Producer-Consumer Conference in Tokyo this week, as industry participants met once again to deliberate emerging trends in the LNG market. The debate advanced some from a year ago, when price indexation had largely taken center stage. With some flexibility now granted in this area, the focus increasingly turned to the still-restrictive terms around LNG delivery schedules and destinations.
Numerous industry observers saw the removal of destination clauses, take-or-pay terms and wider quantity tolerance in contracts as key components that will be necessary to manage the looming supply glut in LNG. "LNG producers must improve on the contract practices of the past. Simply put, producers need to help increase the flexibility of the trade," said Jae-do Moon, South Korea's vice minister for trade, industry and energy.
Jean-Pierre Mateille, Total Gas & Power's vice president for trading, conceded that changes around delivery and schedule terms in contracts were inevitable. "Contracts are becoming shorter.” Most U.S. LNG exports will allow destination flexibility, Mateille said, “We see the traditional link between producer of gas and buyer has been broken up by this new business model.” Satoshi Kusakabe, commissioner of Japan METI's Natural Resources and Energy Agency, said removal of destination clauses would help the market because it would draw more players and increase liquidity and spot trades.
Meanwhile, market uncertainty and lack of new project sanctions has prompted caution of future shortages. "Even at current projections, we need to add about 20 million metric tons of LNG per year to maintain a stable supply demand balance [from 2023 onward]," said Demus King, general manager for offshore resources at Australia's Department of Industry and Science. "To deliver in 2023, FIDs need to be made in the next few years."
Global commodity traders see big opportunities in LNG
(Reuters; Sept. 17) - Mining and trading giant Glencore is mounting a challenge to Trafigura and Vitol to become the top merchant trader of liquefied natural gas as a global market in which sales are largely frozen in decades-long contracts looks ready to thaw. Trafigura recently adopted tactics developed from years of trading oil to become the world's top LNG merchant, investing in logistics and storage, while also providing credit and shouldering risk for buyers.
Glencore, on the other hand, plans to double its global LNG trading team and trade as many as 50 cargoes of the fuel over the next year — almost twice what Trafigura traded in its past fiscal year. LNG could soon surpass iron ore as the world's second-biggest traded commodity, with estimates of the market's worth ranging between $90 billion and $150 billion. "The opportunity for growth in LNG trading is spectacular," said Glencore's global head of LNG, Gordon Waters, who joined the firm in July after 18 years at BP.
Trading companies, which industry sources say have so far accounted for less than 10 percent of overall LNG trade, could help trigger a more liquid Asian LNG market, with exchanges from Singapore to Tokyo launching indices and futures contracts in preparation. Glencore — which has had a limited presence in LNG up to this point — plans to trade in spot or short-term deals over the next year and double the size of its three-trader team based in Singapore, London and Madrid.
First Nation seeks title to island at proposed LNG plant site
(Globe and Mail; Canada; Sept. 18) - The Lax Kw’alaams First Nation is seeking aboriginal title to Lelu Island and Flora Bank, creating a legal obstacle for a Malaysian-led consortium that wants to build a liquefied natural gas export terminal near Prince Rupert, B.C. The aboriginal group will file a notice of civil claim to launch the legal action next week in B.C. Supreme Court, Lax Kw’alaams Mayor Garry Reece said Sept. 18.
Pacific NorthWest LNG, led by Malaysia’s Petronas, is proposing to construct an LNG export terminal on Lelu Island, and also build a suspension bridge and jetty to a dock for Asia-bound tankers. Pacific NorthWest LNG has offered assurances that the design of marine infrastructure will not harm the environment. But the Lax Kw’alaams believe there would be environmental damage because Flora Bank contains juvenile salmon habitat in eelgrass beds next to the island in the Skeena River estuary.
“We want to protect crucial salmon habitat, protect our food security and ensure that governments and industry are obligated to seek our consent,” Reece said. The area is part of the traditional territory of the Allied Tsimshian Tribes of Lax Kw’alaams, and Reece believes that gaining aboriginal title will provide the First Nation with an effective veto over specific aspects of Pacific NorthWest LNG’s proposal. The B.C. government said it respects the right of the Lax Kw’alaams to seek title, while the Prince Rupert Port authority said it is examining the implications of the legal challenge.
Petronas will market ‘package deals’ to sell some of its B.C. LNG
(Platts; Sept. 15) - Pacific NorthWest LNG will look to sell additional volumes of gas from its planned Prince Rupert, B.C., facility to Asian buyers as part of "package deals,” responding to buyer demand, company president Michael Culbert said Sept. 16. “The Chinese, Japanese and Indian markets are seeking diversity [in supply sources] and Petronas is looking at a portfolio of supplying LNG for 20 to 30 years that will be sourced from Canada besides Australia and other global producers," he said.
"A prime advantage of mixing LNG supplies from Canada with other producers will be stability of supply that buyers are demanding," he said on a webcast of the Peters and Co. annual conference in Toronto. Petronas holds 62 percent of the B.C. project that is aiming to start exports in late 2019 or early 2020. Petronas is responsible for marketing the LNG, Culbert said, and already has sold nearly 50 percent of the output under long-term deals with Sinopec, Indian Oil Corp., Japex and Petroleum Brunei.
Culbert did not indicate how much LNG that Petronas plans to sell under the package deals, or if negotiations have already started with Asian buyers. Pacific NorthWest LNG is awaiting final clearance from the Canadian Environmental Assessment Agency before taking a final investment decision to build its LNG facility.
Asian owned-and-operated LNG plant new to the market
(Nikkei Asian Review; Sept. 16) - Companies in East Asia are teaming up to secure cheap, stable supplies of liquefied natural gas. In the process, they are attempting an end-around of the oil giants that dominate the LNG business. One example of how they are trying to do this can be found in Indonesia, where Japanese trading company Mitsubishi and Korea Gas, the world's largest LNG importer, built an LNG plant.
The hope is to eventually ease Big Oil's grip on Asia's LNG market. In August, the first shipment of LNG made its way from the new Donggi Senoro plant to an LNG receiving terminal operated by Pertamina, Indonesia's state-owned oil and gas company. This fall, LNG from the Donggi Senoro plant will be shipped to Korea Gas and Japanese electric utilities, said Toru Kawabata, operations director for the joint venture.
The new plant in Indonesia — at 2 million metric tons annual capacity — is much smaller than the Middle East's typically gigantic production facilities, though it has huge implications for East Asia's LNG market. It is a wholly Asian enterprise in an industry used to Western oil companies taking the lead in building and operating LNG plants — and its output will stay in Asia. Neither Mitsubishi nor Korea Gas has any experience operating an LNG plant, however, and the team has gotten off to a shaky start. After production began, operating errors have caused emergency shutdowns.
Major LNG carrier operator says Australia gas could go to Europe
(Sydney Morning Herald; Sept. 17) - If Asia doesn't want Australia's liquefied natural gas, Europe will take it, said the CEO of one of the world’s largest independent owner and operator of LNG carriers. Australian LNG producers are seeing growth demand in top-consuming East Asia countries, like China, Korea and Japan, dry up as those economies slow down. That's causing some Australian developers whose projects are due to come online to look elsewhere, said Gary Smith, who heads up Golar LNG.
"The only other liquid market that is open to them with the U.S. now closed is Europe," Smith said Sept. 16 at the annual Capital Link Global Commodities Energy & Shipping Forum in New York. "And we've seen it before where cargoes start moving west from Australia instead of east." East Asia nations are not taking a lot of additional supply commitments, with some buyers reselling their cargoes, Smith said. Unless markets in Asia change, Australian LNG is “going to have to go farther to find a home,” he said.
European demand for LNG is constant, since the fuel can be used to replace pipeline gas or used by generators to produce electricity, he said.
U.S. report shows coal losing favor in China
(U.S. Energy Information Administration; Sept. 17) - Economic deceleration, industry restructuring and new energy and environmental policies have slowed China’s growth in coal consumption and are also driving more centralized and cleaner uses of coal. After nearly a decade of rapid growth, coal consumption — which currently supplies two-thirds of China's overall energy use — grew only 1 to 2 percent in 2012 and 2013 and was essentially flat in 2014, according to the U.S. Energy Information Administration.
Total energy consumption in China has slowed as its economic growth has eased and as the composition of its gross domestic product has shifted. In 2013, the service-sector share of GDP surpassed the industry-sector share for the first time in Chinese history. The service-sector share further increased to 48 percent in 2014. Policies to accelerate the development of service industries are likely to sustain the transition away from industry, further weakening coal consumption, the EIA said in its report.
Industry restructuring has reduced China’s energy demand growth from coal-intensive industries such as steel, cement and fertilizer as industry growth slows and processes become more energy efficient. In addition, China's severe air pollution challenges have led to new policies and regulations to restrict coal use in coastal China, to upgrade the nation's coal-fired power generation fleet, and to accelerate the increase of alternative energy technologies.
Idled oil rigs mean less gas production in U.S.
(Bloomberg; Sept. 16) - The retrenchment in drilling for oil in the U.S. is threatening to leave a different market short: natural gas. “The impacts of oil-rig counts extend beyond oil; the outlook for U.S. natural gas is critically dependent on the outcome of this balancing act in U.S. oil rigs,” Anthony Yuen, a strategist at Citigroup in New York, said in a report to clients Sept. 16. “If the oil market remains oversupplied and oil-rig counts fall, the decline in associated gas production would leave the market short of gas.”
Associated gas is the gas that comes out of oil wells along with the crude. Supplies of this byproduct from fields including the Bakken formation in North Dakota and the Eagle Ford in Texas may fall by about 1 billion cubic feet a day next year as drillers idle rigs in response to the collapse in oil prices, Yuen said. The U.S. Energy Information Administration has already forecast that shale gas production will drop in October for the fourth straight month, a record streak of declines.
Crude producers in the Lower 48 states may have to keep the number of working rigs low for a while longer to balance the global oil market, Yuen said. A premature recovery in the rig count may “exacerbate the current oversupplied environment” and weaken prices, he said. While oil prices have been down, natural gas futures have been lower, too, settling at $2.66 per million Btu on the New York Mercantile Exchange Sept. 16, down 41 percent from June 20, 2014.
Floating LNG storage, regasification ships gain in popularity
(Bloomberg; Sept. 15) - At a time when oil and gas producers are writing down assets and canceling projects worldwide, one niche area is booming. Hybrid ships, called floating storage and regasification units, or FSRUs, offer emerging nations from Egypt to Pakistan a cheaper, quicker way to attack power shortages by importing liquefied natural gas. They cost about $300 million to build, half as much as an onshore import terminal, and are up and running as much as six times faster, sometimes within as little as a year, according to FSRU owners Hoegh LNG Holding and Excelerate Energy.
Built at shipyards in South Korea, Hoegh sees as many as 55 such vessels in use within five years, from about 20 now and just one a decade ago. “The main driver is speed,” Sveinung Stohle, Hoegh’s chief executive officer, said by telephone from the company’s Oslo office. “Demand for FSRUs follows a drastic reduction in the cost of LNG. We see that this has caused a very strong increase in requests.”
FSRUs are emerging as the fastest alternative for gas imports as nations imposing limits on carbon dioxide emissions turn to cleaner-burning gas. Competition has cut costs of leasing such vessels by 20 percent to about $120,000 per day from five years ago, said Keith Bainbridge, managing director of industry consultant CS LNG in London. Once the 1,000-foot ships are moored, LNG is transferred from arriving tankers through pipes. The LNG is regasified onboard and typically used at a nearby power plant.
Australia antitrust regulator delays decision on Shell-BG deal
(Wall Street Journal; Sept. 17) – Shell’s $70 billion takeover of BG Group has hit a snag after Australia’s antitrust regulator flagged concerns the deal might squeeze domestic supplies of natural gas and drive up prices. The Australian Competition and Consumer Commission said Sept. 17 it would delay a decision on the deal by about two months toNov. 12, after receiving a welter of submissions from businesses worried Shell would curb local supply in favor of more lucrative sales to Asia through BG’s LNG terminal.
Shell’s proposed acquisition of BG is, in part, a bet that developing countries will move to cleaner-burning gas amid growing pressure to curb emissions. The regulator’s review of the Shell-BG tie-up has become entwined in a separate study of Australia’s East Coast gas market, which Commission Chairman Rod Sims said is one of the few in the world under the shadow of supply uncertainty despite a global gas production boom.
Australia is due to become the world’s biggest producer of liquefied natural gas within two years, as several multibillion-dollar export terminals that began construction when oil and gas prices ran hot start shipping cargoes of LNG to Asia. While that investment holds out the prospect of sharply higher revenues for state and federal governments in Australia, it has also spooked local businesses, which fear paying more for energy as fuel that would have previously fed the domestic market gets shipped overseas.
Gas association launches pro-pipeline public awareness campaign
(Houston Chronicle; Sept. 14) – Increased domestic production has spurred a need for new pipelines to carry natural gas across the country, but also a wariness by some Americans worried about pipelines snaking through the ground. The Interstate Natural Gas Association of America hopes to combat some of the skepticism by rolling out a new ready-for-social-media campaign with videos, graphics and a website emphasizing that pipelines are a vital energy link for the nation.
“If you think about citizens who live near pipelines or in communities where pipelines are proposed to be constructed, they probably don’t know much about natural gas or natural gas pipelines and the tremendous contributions (they) make to overall quality of life,” said Don Santa, CEO of the gas association. With the campaign, INGAA argues that pipelines are the safest method for transporting gas. In addition, gas is better for the environment than the coal it often displaces for power generation.
Cathy Landry, an INGAA spokeswoman, said the group is trying to reach “everyday Americans,” including landowners and others in communities affected by pipeline construction — people who may not realize that natural gas is used to generate electricity as well as fuel furnaces. The campaign is being launched as opponents to oil and gas development have focused more attention on pipelines.
Analyst forecasts another record year for U.S. gas production
(Platts; Sept. 18) - Record levels for production, power burn and storage injection will help make 2015 another record year for natural gas, Jeff Moore, senior energy analyst at Platts unit Bentek Energy, told attendees Sept. 18 at the 38th annual Coal Marketing Days conference in Pittsburgh. Moore said that while coal plant retirements have helped fuel an increase in natural gas generation, the real driver behind in the rise in demand is the commodity's continued low price.
With the Henry Hub price staying below $3 per million Btu, natural gas generation is deployed ahead of coal, Moore said. The only time gas demand for power generation was near these levels was in 2012, the year the Henry Hub price dipped to about $2 in May, he said. Bentek sees the price rounding out in 2015 at an average of $2.68 and increasing to $2.84 in 2016. From 2017 to 2020, Bentek expects the price to average $3.38, $3.85, $4.23 and $4.42, respectively.
Efficiencies in horizontal drilling and a drastic increase in the initial production rate from wells in the Marcellus and Utica shales will push gas production to a new high in 2015, Moore said. Total U.S. marketed gas production is averaging 72 billion to 72.5 billion cubic feet per day this year but will ramp up to near 74 bcf by the end of 2015, Moore said. Gas inventory levels are predicted at an all-time high at the end of the year, but the volumes depend on winter weather.
U.S. oil production finally starts trending lower
(EnergyWire; Sept. 17) – U.S. crude oil production is finally starting to decline, according to statistics and experts. After months of production increases — even in the midst of falling oil prices — total output volumes have been trending downward as production growth in some areas is being outpaced by declines in major shale oil regions. The trend appears to be holding.
Earlier, it had been difficult to tell whether output declines represented a steady trend or the occasional variance seen month to month. Output continues to expand in the Permian Basin of west Texas and southeastern New Mexico and in federal waters in the Gulf of Mexico. But declines in the North Dakota Bakken Shale, in south Texas' Eagle Ford Shale and from other fields appear to be outpacing growth elsewhere.
"There is evidence now that production from the shale plays is declining, not at a rapid rate, but I just recently saw some data for the Eagle Ford and the Bakken which do show production declines over the last couple of weeks," said Bernard Weinstein, director at the Maguire Energy Institute at Southern Methodist University. The U.S. Energy Information Administration sees a gradual decline continuing for the next year, with U.S. oil production forecast to reach 8.63 million barrels a day in August 2016, a drop of nearly 1 million barrels per day from the April 2015 high-water mark.
Low oil prices may cut into production as companies run out of cash
(Bloomberg; Sept. 17) - As much as 400,000 barrels a day of oil production is at risk as U.S. shale companies like Samson Resources run out of money and are forced to slow drilling. Total debt for half of the companies in a Bloomberg index of more than 60 producers has risen to a level that represents 40 percent of their enterprise value. It’s a sign of distress that shows equity values falling in the face of oil’s crash, said Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors.
The companies facing high debt loads, which include Encana and Chesapeake Energy, produced 1.1 million barrels a day in the second quarter of this year, according to data compiled by Bloomberg. If more companies file for bankruptcy as Samson did Sept. 16, or embrace the kinds of draconian cuts needed to survive, output could fall by 200,000 to 400,000 barrels, Thummel said. A loss of that much crude would be the steepest U.S. decline since 1989 — about the same as Oklahoma, the sixth-largest producing state.
“We are going to see a major response because these financially challenged companies won’t be able to produce as much as they did in the past,” he said. As companies run short on cash from low oil prices, they may be forced to idle drilling rigs, file bankruptcy or seek more expensive financing and sell assets. In the past year, U.S. oil producers used 83 percent of their operating cash flow to pay for debt service, according to the U.S. Energy Information Administration. A year earlier, it was less than 60 percent.
|Governor Bill Walker (NGP Photo) wrapped up his final day of meetings to discuss Alaska’s liquefied natural gas potential to prospective customers in Japan. More from Office of the Governor.|
ADN Op-Ed by Paul Jenkins. ... While Gov. Bill Walker was off doing whatever he was doing last week in Japan -- ostensibly trying to peddle Alaska liquefied natural gas he does not own -- he left a fuse smoldering here. ... Walker has a penchant for tossing monkey wrenches. He wanted to expand the $10 billion Alaska Stand Alone Pipeline to compete with the larger project -- touching off a war with the Legislature and triggering corporate night sweats. He wants to buy out TransCanada, expanding Alaska’s ownership to 25 percent of the entire project, not just 25 percent of the LNG plant. (See our weekend commentary) He wants to expand the pipeline’s diameter to 48 inches, further balling up the wax. You can almost hear Alaska’s partners choking. More....
Palmer Frontiersman. Cruz re-appointed to AGDC board
Palmer’s Dave Cruz has been re-appointed by Gov. Bill Walker to serve on the Alaska Gasline Development Corportation Board of Directors.
Cruz is the president of Cruz Companies, which specializes in oil field services, heavy civil construction, remote camp construction, tug and barge operations and a variety of other construction support activities.
AGDC is governed by a seven-member board of directors, which includes five public members and two commissioners.
Petroleum News by Alan Bailey
Commenting that Point Thomson, when it goes into production, will be the first field on Alaska’s North Slope to be operated by ExxonMobil, Cory Quarles, ExxonMobil Alaska production manager, told a Sept. 10 meeting of the Alaska Support Industry Alliance that this is an exciting time in the state for his company. The Point Thomson development is at an advanced stage.
ExxonMobil is also a partner in the Alaska LNG project, or AKLNG, a project to export natural gas from.... More...
ADN Gasline Op-Ed by Paul Jenkins.
Count me among the legions of suckers hungry for happy endings; the hapless mopes actually surprised when Lassie runs to summon help for Timmy in the well; whose eyes still get misty at the end of “It’s a Wonderful Life”; the dupes who thought, “Hey, everybody finally is on the same page -- Alaska really might get a gas line this time.”
We should have known better. It appears Alaska’s lengthy, painful pipeline hopes -- up and down more often than Bill Clinton’s pants -- again are scraping across a rough patch rubbed raw by the natural friction between business and government.
Because of competing interests and responsibilities -- that shareholders v. politics thingy -- government and business cannot function alike. Stir in a few inflated egos, a roller-coaster gas market, a megaproject with a company-breaking price tag upwards of $65 billion and the fireworks potential is off the charts.
While Gov. Bill Walker was off doing whatever he was doing last week in Japan -- ostensibly trying to peddle Alaska liquefied natural gas he does not own -- he left a fuse smoldering here.
The state, ExxonMobil, ConocoPhillips, BP and TransCanada are partners in the massive Alaska LNG Project. The idea is to build a 42-inch-diameter pipe to move perhaps 3.5 billion cubic feet of natural gas daily from Prudhoe Bay and Point Thomson to an LNG plant and export terminal in Nikiski.
Negotiations are underway to set the project’s whozits and whatzits, and nail down details and fiscal certainty for the North Slope producers, who are taking the lion’s share of the financial risks. From all accounts, the talks are not going swimmingly, and Walker’s administration told lawmakers an anticipated fall special pipeline session is off. Reason? Differences among the partners.
That is no surprise. Walker has a penchant for tossing monkey wrenches. He wanted to expand the $10 billion Alaska Stand Alone Pipeline to compete with the larger project -- touching off a war with the Legislature and triggering corporate night sweats. He wants to buy out TransCanada, expanding Alaska’s ownership to 25 percent of the entire project, not just 25 percent of the LNG plant. He wants to expand the pipeline’s diameter to 48 inches, further balling up the wax. You can almost hear Alaska’s partners choking. What he really wants is to be Wally Hickel, a do-it-my-way-or-else iron man ruling the Owner State with an iron fist. Walker channels him regularly.
All that prompted ExxonMobil Chairman Rex Tillerson, in Natural Gas Week, a trade publication, to take a shot or two, saying Alaska is its own worst enemy.
"I have a long history with this, and I always tell every governor of Alaska, 'You are not waiting on us. You are waiting on you,' " he told the publication. "And every governor that comes in decides they've got a different way of doing this, which is why it never happens. You can't take a project that is going to take five-six-seven years to execute and require $50 billion-$60 billion of capital and decide every two years you've got a different way to do it."
While Tillerson is quick to blame Alaska, he conveniently leaves out the economics of the story: Since the battles over building a major gas pipeline in Alaska started in the 1970s, development of Alaska gas never has been commercially viable. Arguably, even with an administration completely gung ho to build a line, it would not have been built.
For his part, Walker told the Alaska Dispatch News some companies are uncomfortable with his administration’s more aggressive stance. Then, unable to leave well enough alone, he went after ExxonMobil, hinting -- despite observers’ contentions the company is more than pulling its weight -- that the negotiating process was hobbled by the “slowest moving” partner in the project; that he was pleased with the “pace of BP and ConocoPhillips.”
It is just more of the same. Alaskans’ gas line dreams started in the 1950s, with the discovery of gas north of Fairbanks. The dreams faded. In 1967, huge gas reserves were discovered at Prudhoe Bay, and Alaskans waited. As the trans-Alaska oil pipeline was built in the 1970s, Alaskans waited. Decades passed; Alaskans waited.
Gov. Sarah Palin in 2007 rammed through the Alaska Gasline Inducement Act, seemingly designed to keep North Slope producers from building a line. Alaskans waited while BP and ConocoPhillips formed the Denali pipeline project. That dream faded, too, a victim of AGIA and fracking that killed North America’s market for Alaska gas.
Yet, here we suckers are, waiting yet again as the latest wobbly partnership edges toward the seemingly impossible.
Waiting for that happy ending.
Paul Jenkins is editor of the AnchorageDailyPlanet.com, a division of Porcaro Communications.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, e-mailcommentary(at)alaskadispatch.com
Aileen Cole, Deputy Press Secretary – (907) 269-7458
Governor Walker & Team Conclude Week of Successful LNG Meetings in Japan
September 18, 2015 KYOTO—Governor Bill Walker wrapped up his final day of meetings to discuss Alaska’s liquefied natural gas potential to prospective customers in Japan. He met with top executives of the LNG trading department of Osaka Gas, and toured the company’s Senboku LNG terminal, which is among the largest in the country.
“It was so exciting to see how Osaka’s LNG terminal works,” Governor Walker said. “We have been shipping LNG to Japan since 1969. I look forward to sending more shipments of Alaska LNG to Japan’s shores.”
Governor Walker and his team met with the executive managing director and general manager of Kansai Electric Power Company (KEPCO), which currently buys Cook Inlet LNG from Alaska’s Nikiski terminal.
Governor Walker and his team also met with Hyogo Prefecture Governor Toshizo Ido, who thanked him for the memorandum of understanding signed with Kyoto, a neighboring prefecture.
“The populous Hyogo prefecture, which includes the city of Kobe, will benefit from the MOU you signed with our neighbors in Kyoto,” Governor Ido told Governor Walker. “We all look forward to seeing your LNG project completed, as the residents of Hyogo and Japan will be able to receive LNG more quickly from Alaska than we currently do from Middle Eastern countries like Qatar.”
Governor Walker noted that LNG shipments would take seven days to reach Japan from Alaska.
“This was a very productive, very successful week in Tokyo, Osaka and Kyoto,” Governor Walker said. “Korea and Japan are the two largest consumers of LNG in the world. Alaska has more than enough natural gas to supply the market and, in turn, satisfy in-state demand so Alaskans can pay less for energy. I look forward to deepening the relationships we established this week as Alaska works with our East Asian neighbors on a mutually beneficial trade relationship.”
Governor Walker spoke at the 4th LNG Producer-Consumer Conference. Governor Walker, Department of Natural Resources Deputy Commissioner Marty Rutherford and Alaska Gas Team General Manager Audie Setters also spoke at the Alaska Oil & Gas Opportunity Seminar—organized by Resources Energy, Inc.., and sponsored by Sasakawa Peace Foundation, Institute of Energy Economics, Energy Resources, Inc., and Japan Institute for Overseas Investment.
Governor Walker and his team also met this past week with presidents, chief executives and representatives of:
· Itochu Corporation
· Japan Oil, Gas and Metals National Corporation
· Tokyo Electric Power Company
· Tokyo Gas
· U.S. Department of Energy
· U.S. Ambassador Caroline Kennedy
· Marubeni Corporation
· Kyoto Prefecture Governor Keiji Yamada
· Kyoto Prefecture Vice-Governor Akimasa Yamashita
· Former Prime Minister Yasuo Fukuda
· Korea Gas Corporation
· Mitsubishi Corporation’s Natural Gas division
· GS Energy
· Toho Gas
· Japan’s Ministry of Economy, Trade and Industry
· Japan Bank for International Cooperation
· Sumitomo Metal Mining
· ConocoPhillips Japan
· JERA Co., Inc.
· Resources Energy, Inc.
· Mitsui & Company
· Osaka Gas
· Kansai Electric Power Company
|We are amazed -- and somewhat embarrassed on her behalf -- that a respected state official would suggest that Alaska has not been on Japan's LNG map. After all, Japan knows its long relationship with Alaska LNG even if Alaska state officials don't.|
“Our visit this week put Alaska on the LNG map, and the market knows that we are serious about liquefying our rich natural gas reserves,” said DNR Deputy Commissioner Rutherford. “I look forward to returning to East Asia to sign LNG contracts.”