My Pipe Dream At Any Cost?
First: An Auction Story
You have been waiting for the big auction and this is the day.
The most famous artist in your great land created an oil painting decades ago that happened to feature the big black and white husky which begat the great, great, great, great, great grandson which fathered your constant companion, "Jake".
Your emotional attachment to the estate sale painting of that famous sled dog sire has captivated your attention for weeks, since the passing of your neighbor and best human friend.
Owning it would be a dream come true.
And the painting's value is enhanced as you recalled the countless hours you and Jake spent at the next door home of, old Robert, the last male descendent of the revered artist.
You two would sit there by the fireplace, beneath the large painting, with your faithful huskies sitting at your feet, a cup of black coffee or a libation in hand.
You would talk endlessly of youthful adventures on the sea, in wild forests, avoiding 'sweepers' while floating down some salmon stream in an old air-filled raft, dealing with dangerous winter sled dog races through sub zero winter storms.
You save for the auction. You hope no one else has the attachment you do, or values the painting as you do.
The bidding begins and, to your surprise, the action is robust. Hands raise and the auctioneer catches every outcry, wink and nod. The price swiftly moves from $250 by one hundred dollar increments to $3,000, then with $250 increments to $5,000...well past your savings and pre-determined bidding limit.
A crowded and animated room -- full of friends, neighbors, local business leaders, the museum director and the largest local art gallery owner -- begin chasing $1,000 increments to a final sales price of $26,250.
You wish with all your heart -- as you say good-bye to everyone and turn to walk home -- that the familiar painting and its image could have hung over your own fireplace. It would have been so comforting to sit in your own family room with Jake and a million memories, fire blazing under that familiar image.
How you wish you could have returned home with the prize!
Should you have forgotten your savings limit and simply captured that beloved image with credit card debt? Wouldn't it have been worth it to make payments for something so dear?
But then, reality settles in. "I established the limit at what I knew I could have afforded", you say to yourself.
"I knew that if the bidding took the price higher, I would be tempted to go into debt," you thought.
You knew that debt at your age -- and the effect of indebtedness on your family -- would far outweigh the selfish satisfaction the prize would have given you.
Rational thought seemed to comfort you.
"I knew that sitting under the painting would provide fleeting satisfaction as I contemplated the impact of debt for the next five years", you reminded yourself.
You knew that the simple joy of being with Jake -- without the presence of the painting and its cost -- would continue to be quite enough.
And, so it was, that while you coveted and wished for a thing that became unattainable, you soberly recognized the truly valuable elements of life.
And, I'm guessing that your last thought was one of gratitude to the great Creator who had given you a wonderful life, loving family, friends like Robert and a faithful companion.
Actually, your dreams have come true, haven't they?
Second: A Gas Story
The efficient Arctic Gas Pipeline of the 1970s failed when a National Energy Board Decision upheld Justice Berger's (See 6-14-02 entry) recommendation for a Mackenzie River Valley, 10-year pipeline moratorium. (Canada can be its own worst enemy, too.)
The Alcan pipeline project failed with advent of the 1980s, as gas prices plummeted and the project became infeasible. Producers like ARCO studied LNG export options but those alternatives then were also infeasible.
Then the late 1980s recession made virtually all oil and gas projects infeasible.
As gas prices recovered in the early 2000s, industry and governments began once again pursuing projects to monetize Mackenzie Delta and Prudhoe Bay gas -- with separate overland pipelines to Canadian and Lower 48 consumers.
Then, a half-decade later, with the advent of new shale oil & gas technology and low, domestic prices, Arctic gas pipelines south became infeasible.
Arctic gas proponents then shifted their focus on LNG export options that had grown in feasibility.
By the mid 2010s, LNG feasibility had become more popular with the evolution of more LNG import demand, local distribution systems, shifts from other fossil fuel power generation projects and growing populations.
The Mackenzie Delta gas seemed more permanently stranded while Prudhoe Bay gas owners again began reviewing LNG alternatives.
The gas owners and large gas transportation companies seriously studying feasible ways to market gas from the 1970s forward, had always concluded that pipelines were cheaper after studying ALL alternatives, including LNG.
And, they had never delayed development of Alaska gas, from our first-hand knowledge, based on some allegation of bias against LNG export projects.
During those decades, Alaska LNG advocates, who did not own the gas, sought to use political influence to cause gas to be marketed via LNG transport through their own marketing organizations -- with insufficient attention to project feasibility.
To use the left column analogy, they seemed to want to buy the dream at any cost, as long as someone else shouldered the major cost.
The gas owners, however, were not careless enough to allow gas to be marketed via -- what was over those years -- inefficient, self-serving LNG transportation project feasibility.
To this day, early advocates of LNG, continue to be upset with and demonize the gas owners. The gas owners are North Slope producers, who have paid for leases and have the right to market the gas they discovered.
Alaska's North Slope producers are among the most important companies in their industry, with LNG and pipeline expertise and oil/gas marketing expertise and world wide contacts.
They are best suited to create the most feasible projects and market gas most profitably. Since Alaska's oil & gas tax revenue rests on a percentage of value, the greater value obtained by producer experts will enhance the value of Alaska's tax and royalty revenue.
The producers continue to professionally and diligently work this year. Their effort will determine the feasibility, once again, of exporting Alaska North Slope gas.
But this time, there are nearly a hundred LNG projects hoping to compete for the limited demand in a very competitive market.
And Alaska is not one of the lower cost projects; that is, Alaska is attractive because of its vast reserves but unattractive because of its market remoteness, climate, logistical challenges, high labor costs and an unreliable investment (i.e. political) climate.
What is competitive? Whereas LNG used to sell in Asia at a price range in the high teens per million Btu, the price now hovers, miserably, in the mid single digits in today's abundant, shale-stimulated gas market.
It is also a reality that any investor in major Alaskan projects must know that once an investment is made in a jurisdiction with an unsustainable budget, the investment risk -- the risk of wealth expropriation via predatory taxation -- is great, perhaps too great.
Alaska LNG diehards, like the neighbor lusting after a long coveted painting (Above, column left), desperately want ownership in an LNG project -- if they can get government to assure the project is built. But at what cost? At any cost?
We citizens and consumers are pretty objective. We want to monetize Alaska North Slope gas profitably. We don't want to be in debt. We don't want to waste public money. We want a stable economy. We want and desperately need new oil and gas investments -- from investors who trust us -- to sustain falling production on top of rock bottom oil prices.
The LNG diehards, like Alaska's governor who advocated infeasible LNG projects for their own special interests, now try to convince Alaskans something to the effect that, We will make a lot more money if we are equity owners in a gas pipeline.
But Alaska's citizens and consumers are not stupid. They have seen many (i.e. actually, "all") Alaska North Slope gas projects die because of changing markets and technologies.
They know that while a gas project might be built at just the right time, it also might fail, as others have.
No one can predict today whether in 2025, when the Alaska LNG project is scheduled to go on line, it will be making money or losing money.
If Alaska's government (and citizens) are equity owners of an economically feasible gas pipeline, they might make more money than they would as passive acceptors of 1) royalties, and 2) a severance tax, 3) a property tax, and 4) an income tax.
But if the pipeline costs more than shippers are willing to pay for transporting gas -- or ends up with few or no credit worthy customers -- Alaska could be in the disastrous position of being an part-equity owner that must PAY the difference between the cost of transport/financing vs. transportation income.
It has been said and pretty well confirmed that in energy and economic matters, "Alaska is its own worst enemy". How could any thinking person disagree, based on Alaska's history? This earned reputation lives on today, because of its history of predatory taxation, retroactive taxation, attempts to pass a reserves tax, and irrational, political hostility toward the state's largest investors.
But now, citizens and legislators know the risky history of:
- The Arctic Gas 1970-era project ; and
- the 1980-era failure of the NW Natural Gas/Alberta Gas Trunk Line, Ltd. Alcan project; and
- Failure of several generations of LNG advocates, including: El Paso Natural Gas; Yukon Pacific; Alaska Natural Gas Development Authority; Alaska Natural Gas Port Authority; and
- the 1990-early 2000 Alaska Highway Gas Pipeline project (owned by TransCanada) and Mackenzie Valley Gas Pipeline failures (in which TransCanada participated with Canadian aboriginal groups).
The vast Alaska natural gas reserves certainly may justify investment by private energy companies in a new effort to monetize their gas.
The success of energy companies for well over a century has entailed risk. But the risks are often acceptable because they are risking their own capital and because they are experts in the business.
In today's world of increasing socialism, Alaska seeks to take equity risk, without having commensurate expertise, perhaps knowing that it can always just burden individual and corporate citizens, with new taxation, to keep government whole when the investment sours.
|ADN by Alex DeMarban. In December, 1,020 Alaskans who had been working in the oil and gas industry collected $1.1 million in unemployment benefits. That compares to 518 in December 2014, Lennon Weller, a state Department of Labor economist, said Friday.|
Alaska faces a bleak economic future wherein its decision makers have allowed the state to become dependent on the fortunes of a volatile and risky oil business. And that risk has led to an unsustainable economy destined for bankruptcy in less than ten years. Of course, disaster could be averted with a "eureka discovery" of newfound wealth or a harsh, disciplined expense cut...so we need not be completely demoralized by the options.
Unfortunately, the governor whose experience rests on failed, self serving LNG advocacies, now advocates risking public money on equity risk in an LNG project when immediate economic realities threaten the state's economic survival:
- a state operating budget almost 90% dependent on Prudhoe Bay oil; and
- a state economy over a third dependent on the oil industry; and
- a Trans Alaska Pipeline System (TAPS) transporting Prudhoe Bay oil which is 3/4 empty; and
- oil prices that are 3/4 lower than they were 18 months ago; and
- oil production diminishing; and
- a nearly $4 billion annual operating budget serving a population of fewer than 800 thousand folks, and
- a multi-billion dollar state employee retirement unfunded liability; and
- the highest per capita spending and debtor state in the nation; and
- government constituencies seeking to impose new taxes and fees on the private sector so that the public sector can remain as unharmed as possible; and
- impartial New York rating agency creditworthiness announcements revealing an increasingly dark, Alaska economic outlook, exacerbated by a higher cost of borrowed money.
No one wants to see the economically viable construction of a gas pipeline project more than this writer, having worked directly and indirectly for or with a number of them since 1972.
But we join fellow citizens in not being willing to support public money being invested in any company's ownership, much less one involved in the highly complex, highly risky field of oil and gas.
As we walk away from the idea of paying more for pipeline risk than we can afford, like the neighbor in the other column, we can nevertheless comforted, if:
- we have endeavored to act like adults, and
- if we tried to be prudent custodians of public money, and
- if we tried to restrain our zeal for a gas project in light of economic realities, and
- if this is the heritage we should look back on later, once the present has become prologue.
We take final comfort in knowing that with many decades of gas pipeline experience, North American energy investors have the best chance of developing an economically feasible project.
Alaska's North Slope producers have the best chance of succeeding, that is, if they can be treated reasonably and fairly in a prudent state -- with malice toward none -- that finally learns how to balance a budget based on a volatile but provident source of natural resource wealth.
Sure, we may not have had the gas monetization project I wanted, or you wanted, or the governor wanted.
But, acting now with intelligence and honor, and knowing our own limitations in expertise, we and the next generation may escape from a dreary outlook, into the bright light of a prosperous future featuring a feasible, profitable Alaska North Slope gas pipe dream turned into reality.
A New News and Policy Analyst In Town
A New Team Of Alaska Oil and Gas Exploration Companies
Below we bring you excellent policy commentary on issues related to the Alaska gas monetization project, www.AkLNG.com, and the state's related fiscal crisis. Alaska Headlamp also describes efforts by Alaska's Regional Native Corporations to explore for oil and gas in rural Alaska.
We've monitored Alaska Headlamp in these pages since it appeared late last year. Now, we officially welcome it to the public dialog!
Today's Alaska Headlamp analysis and commentary:
New wildcats. Alaska Native regional corporations are wildcatting for oil and gas in the state's frontier basins, eyeing little-explored prospects after dusting off old studies by major oil companies. They aren't seeking the huge petroleum discoveries like those on the North Slope. Instead, they say smaller finds will serve their goals of creating jobs for local residents, while providing affordable energy in villages beset with crippling gasoline and heating oil costs. Native corporations eyeing frontier basins include Ahtna, who's planning to drill a gas well this spring near its headquarters in Glennallen. Further north, NANA wants to conduct seismic surveys not far from its Northwest Alaska headquarters in Kotzebue. The exploratory work is eligible for the state tax credits that some lawmakers want to eliminate to help counter a massive budget deficit caused by sliding oil prices and historically low oil production. A Senate working group that held hearings on the tax credits last fall cited Native corporations' unique role in Alaska as one reason frontier exploration should continue to receive a benefit if the $500 million program is scaled back. Created by the 1971 Alaska Native Claims Settlement Act, the corporations and nine other regional Native corporations are supposed to use their large land holdings to promote "economic health" in their regions, said the summary report from the Senate working group. They also return profits to their Alaska Native shareholders.Headlamp fully supports the new exploratory work being conducted by the Alaska Native corporations. Resource development, no matter the scale, is an ever-important aspect of Alaska's economy. Such development projects should be pursued across all corners of the state to create new jobs, especially in regions with high unemployment rates.
Sen. Kevin Meyer, R-Anchorage, has signaled to his majority caucus that it's time to consider finding new revenue to balance the state budget by putting a statewide sales tax on the table. This move follows Gov. Bill Walker's proposal that included a state income tax. When Walker declared his candidacy for governor in April 2013, he told reporters, "Alaska has gone from an owner state to an owned state, and we have no one to blame but ourselves." One thing he was referring to was SB21, the new oil tax law that the Legislature had just passed. He believed it compromised the state's resource development interests.Alaska absolutely needs a bipartisan solution to the fiscal crisis it is facing. That said, Headlamp, and most Alaskans know, that taxing our way out of the hole we're in is not a solution. Headlamp reminds policy makers that every dollar taken out the private sector, which is being hit the hardest in this era of low oil prices, through taxes, to support government, is a dollar that could have been better invested or spent. Increasing taxes will continue to hamper Alaskan businesses and families already plagued by declining oil prices. There are plenty of ways to balance a budget without more taxes. Headlamp hopes that when the legislature reconvenes next week solutions, that inflict the least harm on the private sector and Alaskan families, will be found.
The Alaska Dispatch News published a profile of Attorney General Craig Richards. Richards has taken on high-profile lead roles on Walker's plan to fix Alaska's huge budget deficit, and on state efforts to develop a $55 billion natural gas pipeline from the North Slope -- two items at the top of the governor's wish list. Walker recently placed Richards on the board of trustees of the Alaska Permanent Fund Corp., and also appeared in a Fairbanks courtroom last month for the announcement of a settlement that freed the men known as the Fairbanks Four from prison. Richards also has his day job of being in charge of the Alaska's 550-person Department of Law. Randy Hoffbeck, now Alaska's Revenue Commissioner, described Richards as "supremely smart and "confident" based on legal cases in which he was involved prior to Walker's election. Nonetheless, some lawmakers question whether Richards has taken on too much. "He's been delegated a tremendous amount of responsibility in areas that you wouldn't typically expect," said Sen. Bill Wielechowski, an Anchorage Democrat and also an attorney. He added: "It's a little worrisome from a workload perspective, because the attorney general is the top attorney in the state -- now you're putting on top of that the gas line, and now you're putting on top of that the Permanent Fund, basically the crux of the state's fiscal plan." Anchorage Republican Rep. Charisse Millett, the House Majority leader, said some of the animosity toward Richards stems from what she described as "maybe a little bit of an attitude that he's above, that the administration is above the Legislature -- and we're on a need-to-know basis…That's not the way government was designed." Headlamp hopes to see more cooperation and dialogue between the Walker administration and the Legislature in 2016.
Subscribe to Alaska Headlamp here.
Alaska Journal of Commerce, by Tim Bradner. Alaska Gov. Bill Walker (NGP Photo) said he gave the OK Dec. 3 for the state to vote “yes” on continuing work on the Alaska LNG Project after receiving commitments from two North Slope producing companies that they would not withdraw from the project without negotiating to sell their gas.
That same day the partners in the project, BP, ConocoPhillips, ExxonMobil and the state, voted to approve a $230 million 2016 budget and work plan to complete preliminary engineering work. The state’s share of that is 25 percent, or about $57 million.
Be sure to read this excellent Opinion piece from today's Alaska Headlamp!
Our Comment (See Right Column): As to government ownership in a private energy project, we would only opine, "Isn't it great to have a 25% equity government partner that can use its veto power to either approve or disapprove a project's budget based on whether or not the three private partners make extraordinary commitments to the government partner?"
To our many friends so currently mesmerized by the concept of government involvement bringing "alignment" to an energy project via equity participation, we continue to mutter an unappreciated caution, "Beware of what you wish for."
See more here, in yesterday's comment regarding the risk one assumes when one settles into bed with a government, gas pipeline partner. -dh
Larry Persily's (NGP Photo) relevant energy links:
Unsold LNG will hang over market to mid-2020s, analyst says
(Sydney Morning Herald; Dec. 7) – Though the oil market is in dire straits, the liquefied natural gas market is worse, experts say. Hanging over the market for the next several years are large volumes of U.S. LNG exports in search of end consumers. Consultancy Facts Global Energy says 25 million to 35 million metric tons of the 65 million tons a year of U.S. LNG export capacity under construction has been sold to middlemen, traders or portfolio players such as BG or Mitsubishi, which still need to sell the gas.
"Portfolio sellers and traders are not end users, they must find buyers," FGE founder Fereidun Fesharaki said. In addition, about one-third of Qatar's LNG export capacity is unsold, while the three big Chinese national oil companies and one Indian national oil company have switched from buying to selling as they seek to resell LNG they have committed to buying but no longer need, according to FGE.
That means about 70 million tons a year of LNG still needs a buyer, weighing on the oversupplied Asian market to the mid-2020s, the consultancy said. Fesharaki describes those holding the contracts as "desperate sellers" that will provide stiff competition for producers seeking customers for new LNG projects. Fesharaki names only three new projects that could move forward in the next few years: Anadarko's Mozambique venture; expansion in Papua New Guinea; and Petronas' project in Prince Rupert, B.C.
Lack of new projects in 2020s could drive LNG prices higher
(Forbes columnist; Dec. 5) – At first blush it’s easy to skim the news of Indian LNG buyer Petronet negotiating a lower price for deliveries from Qatar’s RasGas and miss its significance. But the news is profound and typifies the radical shift that LNG markets are going through after the period of limited supply and exorbitantly high prices (2011-2014) post the March 2011 Fukushima nuclear disaster and subsequent shutdown of all of Japan’s nuclear reactors and that country’s over-reliance on LNG.
During that period, the world’s largest LNG importers, particularly Japanese and South Korean utilities, were at the mercy of LNG producers. Spot prices for the fuel breached the $20 per million Btu mark in early 2014, while producers also locked in handsome long-term contact prices based on crude oil prices. The pendulum has now swung the other way and LNG producers are now at the mercy of buyers, hence the significance of the Petronet-RasGas contract negotiations.
However, buyers should not get too greedy in all of this, because after 2020 the pendulum will likely start to shift again in favor of producers. As natural gas prices bottom out, likely in 2016 and a few years after that, even plummeting to around $4, investment in new LNG projects will cease, which will halt new production. With new production tapering and demand increasing over the long term, markets will do what they do best, which is swing yet again in the other direction.
Anadarko says it will make Mozambique LNG decision in 2016
(Financial Times; London; Dec. 7) – Anadarko is planning to make a final decision next year on how it will develop vast gas discoveries the company has found off the east coast of Mozambique. There have been concerns that the collapse in oil prices could cause big delays in the commercialization of Mozambique’s liquefied natural gas projects, but Al Walker, Anadarko’s chief executive, said the company was on track to start producing LNG by late 2020.
Pressing ahead with Anadarko’s gas development in the Rovuma Basin in the Indian Ocean hinges on the company taking a final investment decision, which had been expected this year. That decision is now due for the second half of 2016, Walker said, following important agreements with the Mozambique government governing gas for local demand and a joint development agreement with Eni, the Italian oil company that has also made large gas discoveries in the Rovuma Basin.
Anadarko has discovered more than 75 trillion cubic feet of gas in the basin, while Eni has found about 85 tcf. Mozambique would be Anadarko’s first foray into LNG. The first phase of the project — expected to cost at least $15 billion — would include building two LNG trains, with output of 12 million metric tons per year. Anadarko is hopeful it can benefit from delays with other energy projects and industry-wide cutbacks in capital spending, allowing it to negotiate better prices with contractors and service providers.
Qatari LNG exec predicts strong demand growth
(Asian Oil and Gas; Dec. 6) - Despite recent turbulence, the global market for liquefied natural gas remains strong and continuous demand growth is expected for years to come, said Khalid Sultan R. Al Kuwari, chief marketing and shipping officer of Qatar’s RasGas. Speaking at an LNG conference in Italy, Al Kuwari said a demand growth rate of approximately 5 percent per year from 2015-2025 is anticipated. “During this period, LNG demand is expected to outpace the overall growth in natural gas demand.”
Challenges to the traditional LNG pricing mechanism in Asia, “combined with the recent drop in crude prices and the resurgence of nuclear and coal for power generation has changed the familiar landscape for LNG in Asia and brought into question economics for some new and some planned LNG projects,” he said. “However, new customers and new markets for LNG are also increasing at an ever faster pace. LNG is still a business requiring significant capital investments in production, liquefaction and transportation.”
In October, the CEO of RasGas, Hamad Mubarak Al Muhannadi, told delegates at Gastech in Singapore that the decline in LNG prices and introduction of new suppliers will require a collaborative effort from LNG suppliers and buyers to adopt a sustainable market. “However, if LNG suppliers fail to develop resources required to meet forecasted longer-term demand growth at the right time and place, there will be a supply and demand imbalance with longer-term implications for LNG prices.”
Europe’s move away from coal-fired power plants will benefit gas
(Bloomberg; Dec. 8) - Lawmakers from Germany to the U.K. want to legislate coal out of existence. And as their profit margins slump, power producers too are giving the fuel the cold shoulder in favor of cleaner natural gas. The switch to the less polluting fuel is so far most prominent in the U.K. market. After natural gas prices dropped 26 percent this year, the fuel last month was more profitable than coal in power generation for the first time since 2011, according to data compiled by Bloomberg.
Gas has also started to displace older coal plants in Germany at times of peak power demand, according to Pira Energy Group, a consultant to the industry. As European nations phase out coal, utilities are so bullish on the future of gas that they are bringing back mothballed plants. “This is a turning point in European power,” said Bruno Brunetti, a senior director of electricity at Pira, who has tracked Europe’s energy markets for 20 years. “This is a structural recovery in gas-plant profitability, not just a random uptick.”
The tide against coal extends beyond power-plant economics. Norway’s $900 billion wealth fund and insurer Allianz SE this year joined investors snubbing the fuel. While it is currently used to generate 41 percent of the world’s electricity, almost twice that of gas, coal’s share will drop to 30 percent by 2040, according to the International Energy Agency in Paris. Britain will phase out its dirtiest coal-fired power plants by 2025 and plans to spur new gas and nuclear stations as replacements.
Low prices help gas overtake coal for U.S. power generation
(EnergyWire; Dec. 9) - Gas-fired power generation is increasingly overtaking coal-fired generation as sustained low prices give the cleaner fuel an edge, federal statistics show. April of this year marked the first month ever in which natural gas outpaced coal in U.S. power generation. But the trend has gathered momentum as July, August and September brought the same dynamic, according to the U.S. Energy Information Administration's latest short-term energy outlook.
EIA expects that the two fuels will vie for top billing in the nation's electric generation portfolio over the near term, with coal contributing 34 percent to 32 percent for gas on a yearly basis in 2015 and 2016. EIA points to low gas prices as the main driver behind the shift, which saw a 4 percent lead for natural gas over coal in electric generation for September. The agency is predicting the Henry Hub natural gas spot price to average $2.47 per million Btu this winter, down from $3.35 last year.
The combination of lower gas prices and predictions of a generally warmer winter this year than last are expected to bring significant savings for U.S. households that heat with natural gas — an average 13 percent reduction in heating expenses. Nationally, natural gas storage is at an all-time high; inventories touched a record 4.01 trillion cubic feet last month before starting their seasonal decline, EIA data show. Taken together, the trends point to a near term of continued low natural gas prices.
U.S gas production to set new record in 2015
(Reuters; Dec. 8) - The U.S. Energy Information Administration on Dec. 8 said domestic natural gas production in 2015 was expected to reach 79.58 billion cubic feet per day, topping 2014's record 74.89 bcf. It would be the fifth consecutive record year for U.S. gas production. For 2016, the EIA forecasts more records with production rising to 81.05 bcf and consumption to 76.66 bcf. The surplus mostly will go out as pipeline gas to Mexico and LNG from the first Gulf Coast export plant, starting up in January.
The EIA said power sector consumption drove demand growth in 2015, while industrial consumption was flat in 2015 but is expected to increase by 3.9 percent in 2016 with new industrial projects, particularly fertilizer and chemical plants. The agency expects production will increase due to rising drilling efficiency despite low gas prices and fewer drill rigs at work. Most of the production growth is expected to come from the Marcellus Shale as drillers reduce the backlog of uncompleted wells and new pipelines go online.
China’s cut in natural gas prices could deepen losses for importers
(Radio Free Asia; Dec. 7) - China has slashed natural gas prices to boost consumption of the cleaner-burning fuel, but the move may come as a shock to producers that have been struggling with low demand growth this year and importers that lose money on gas sales. China's top planning agency cut wholesale gas prices for non-residential users Nov. 20 by an average of 28 percent, reducing the charge by $3 per 1,000 cubic feet. The agency has been under pressure for months to revise its policies as high natural gas prices have discouraged demand and efforts to curb reliance on high-polluting coal.
Lower prices could speed fuel switching by power producers and industry, easing smog and carbon emissions. The government's goal is to boost the gas share of China's primary energy mix to 10 percent by 2020 from 5.7 percent last year. The target is seen as critical to meeting China's pledges to fight climate change. But the huge price cut, coming after a smaller adjustment in April, will leave some segments of the gas market reeling, raising doubts about whether the policy can be sustained.
"Domestic producers and importers of gas will certainly be hit with losses of billions of U.S. dollars," said Philip Andrews-Speed, principal fellow at the National University of Singapore's Energy Studies Institute. PetroChina, an arm of state-owned China National Petroleum Corp., lost $1.68 billion on gas imports in the first half of this year. The lower prices could have far-reaching consequences, particularly if consumption does not respond to the price cut, leaving producers with high development costs and low sales.
Canadian city council votes for repeal of LNG terminal tax break
(CBC News; Dec. 8) - The City of Saint John will ask the New Brunswick provincial government to repeal a special property tax deal for the Canaport LNG terminal. Council member Shirley McAlary started the debate by introducing a motion to ask the provincial government to repeal the controversial tax deal for Canaport — an LNG import terminal, which its owners are thinking of expanding to export liquefied natural gas. "We've got to start where we have to start," McAlary said. "And that's with the province."
The deal, approved by the provincial legislature in 2005, chopped municipal property taxes on the terminal by more than 90 percent. It fixed the rate at $500,000 per year until 2030. In 2005, the provincial government created special legislation to facilitate the tax deal after an endorsement by the city council. Norm McFarlane, the former Saint John mayor, told council members he had been assured construction of the import terminal could not proceed without the 2005 arrangement.
A report to city council Dec. 7 by John Nugent, the city solicitor, said the terms of the lease arrangement were likely not known at the time of the previous council vote. Already under budget pressure to cut services and lay off staff, city councillors lined up Dec. 7 to support McAlary's motion. "There's a time for giving and there's a time when you can't give any more," said council member John MacKenzie. "And we're at a time when where we need every nickel we can get." The motion passed on a 7-2 vote.
B.C. First Nations have not settled sharing of gas pipeline payments
(Terrace Standard; Terrace, BC; Dec. 9) - Seventeen First Nations spread over more than 600 miles across northern B.C. are struggling to divide as much as $30 million in annual payments from the provincial government should three pipelines carrying natural gas from the northeast to proposed liquefied natural gas export plants on the West Coast ever be built. None of the LNG project developers have committed to start construction, though the province remains hopeful.
An original deadline of June 30 has been extended to Dec. 31 as the First Nations consider a series of detailed options over how much money each should receive. Each of the pipelines — Coastal GasLink to Kitimat for the planned LNG Canada plant, Prince Rupert Gas Transmission to the Prince Rupert area for the Pacific NorthWest LNG plant and the Westcoast Connector to another planned LNG plant at Prince Rupert — would provide the affected First Nations with $10 million a year in provincial payments.
The province originally said it would step in and make decisions on how to divide the money should the First Nations not reach agreements by June 30, but is now giving them more time to come up with their own formula. Allocation issues are the number of miles each line would stretch through each First Nation’s territory, while some question whether they want pipelines constructed at all and some neighboring First Nations have overlapping territorial claims. And some question if any of the pipelines will ever be built.
Renewed U.S. Gulf oil production adding to oversupply
(Wall Street Journal; Dec. 6) - The standoff between major global energy producers that has created an oil glut is set to continue next year in full force, as much because of the U.S. as of OPEC. American shale drillers have only trimmed their pumping a little, and rising oil flows from the Gulf of Mexico are propping up U.S. production. The overall output of U.S. crude is down less than 3 percent, to 9.3 million barrels a day, from the peak in April. Some analysts even see potential for U.S. output to rise next year.
The situation has surprised even seasoned oil traders. “It was anticipated that U.S. shale producers, the source of the explosive growth in supply in recent years, would be the first to fold,” Andrew Hall, chief executive of the commodities hedge fund Astenbeck Capital Management, wrote in a Dec. 1 letter to investors. But the companies slashed costs and developed better techniques to produce more crude and natural gas per well.
Meanwhile, production is growing in the Gulf, where companies spent billions of dollars developing megaprojects that are now starting to produce oil. Just five years after the worst offshore spill in U.S. history shut down drilling in the Gulf, companies are on track to pump about 10 percent more oil than they did in 2014. In September, they produced almost 1.7 million barrels a day. Since most of the money was spent before crude prices cratered, and since pipelines and other infrastructure are already in place, it makes economic sense for the companies to go ahead with the projects despite the glut.
Further spending cuts possible as oil falls below $40
(Wall Street Journal; Dec. 8) - Brent, the global oil benchmark, fell below $40 a barrel for the first time in six years Dec. 8, dipping below what traders say is a key level for the marker used by the world’s oil producers to price their crude. The development is further proof that the oil-price malaise could continue far longer than first forecast by analysts and observers. The psychological impact of sub-$40 Brent could prompt speculators, traders and money managers to start scaling back on investments in the oil sector.
The U.S. West Texas Intermediate benchmark fell below $40 back in August, but many analysts were predicting Brent to stay above $45 as recently as last week. Brent’s dip below $40 for the first time since February 2009 is another marker in the steep decline in crude that followed the Organization of the Petroleum Exporting Countries’ decision Dec. 4 to keep supply unchanged. The decision sent prices into heavy falls, with shares of energy companies tumbling and analysts scrambling to recalculate their predictions.
Brent is a blend of crudes from several North Sea fields and is the primary reference point for pricing of about two-thirds of the world’s oil. The benchmark typically trades above WTI, which has a lower density. Though producers have scrambled to lessen the impact of falling prices on their businesses, few have prepared for a prolonged period in which oil remains below $40. Such an eventuality will mean the extension of deep spending cuts, project delays and cost-reduction programs.
U.S. shale oil production down 600,000 barrels a day from peak
(Reuters; Dec. 7) - U.S. shale oil production is expected to fall by more than 600,000 barrels per day in January from the March peak, according to a U.S. government forecast Dec. 7, on the back of a global glut that's slashed oil prices to a near seven-year low. Total U.S. output — shale, tight oil and conventional oil — is set to decline by just over 115,000 barrels in January compared with December, according to the U.S. Energy Information Administration.
Bakken Shale oil production from North Dakota is set to fall 27,000 barrels, while production from the Eagle Ford is expected to fall by 77,000 barrels a day. Low oil and gas prices have pushed companies to cut back on drilling and production.
About 5% of oil wells in North Dakota are up for sale
(EnergyWire; Dec. 10) – North Dakota's oil production slide paused in October, but state regulators said production could fall more if the price continues to slide, and some companies have begun selling their oil wells in a last-ditch effort to fund their operations. Companies pumped 1.17 million barrels a day in October — about 7,000 a day more than in September but still about 5 percent below the all-time production number set in December 2014, according to data released by the state Dec. 9.
The number of drilling rigs in the state has fallen to 65 this month, down 70 percent from its high in 2012, and another 10 rigs could be shut down if prices continue to drop, Department of Mineral Resources Director Lynn Helms said during a conference call with reporters. "We're looking at a lot of belt-tightening, and we're looking at it continuing through the entire first half of 2016," Helms said.
Nationwide, oil prices have fallen almost two-thirds since the summer of 2014 to about $38 a barrel this week. In North Dakota, oil traded for $27 a barrel, largely because of the state's distance from refining centers. About 710 oil wells are up for sale, Helms said, citing records of bond transfers. That's about 5 percent of the wells in the state. About 300 are being sold by Occidental Petroleum, which announced in October it will sell its Bakken Shale operations to concentrate on other fields, Helms said.
News Miner by Max Buxton. As the state still works out just where it’ll get gas for the Interior, the local utilities and state officials are working through a laundry list of other issues to prepare the Interior for natural gas.
At the top of the list is figuring out what a unified, single gas utility will look like for the Interior after the state bought Fairbanks Natural Gas with plans to merge it with the municipal Interior Gas Utility.
|Platts. Alaska Governor Bill Walker said he has commitments from two of three North Slope producers who are partners with the state in the big Alaska LNG Project not to withdraw from the project without offering gas to potential buyers through the project. ...Walker said BP and ConocoPhillips delivered letters making the assurances to him the day before. ExxonMobil, a third partner in Alaska LNG Project, did not send a letter. More....|
That $52.5 million buy was completed in October, and in addition to Fairbanks Natural Gas, included a liquefaction facility in Port MacKenzie and the trucking company Fairbanks Natural Gas has used.
At the Dec. 3 meeting of the Alaska Industrial Development and Export Authority’s board, Interior Energy Project lead Gene Therriault (NGP Photo) told the members the combination of the two utilities is currently being worked out, but it’s planned to be complete by mid-2016. More....
There are very few seats remaining. Click here to reserve your seat now.
Speaker: Caelus Energy's Pat Foley, SVP Alaska Operations
Topic: Building the next Horizon of Alaska's North Slope Resources
|Date:||December 10, 2015|
|Time:||07:00 AM - 08:00 AM AKST|
Early Monday Report....
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MIT Climate Scientist Dr. Richard Lindzen: 'Demonization of CO2 is irrational at best and even modest warming is mostly beneficial.' - 'When someone says this is the warmest temperature on record. What are they talking about? It’s just nonsense. This is a very tiny change period.'
Princeton Physicist Dr. Will Happer: 'Policies to slow CO2 emissions are really based on nonsense. We are being led down a false path. To call carbon dioxide a pollutant is really Orwellian. You are calling something a pollutant that we all produce. Where does that lead us eventually?'
Greenpeace Co-Founder Dr. Patrick Moore: 'We are dealing with pure political propaganda that has nothing to do with science.'
"Alaska will give no more" The Senate Energy and Natural Resources Committee on Thursday will hold an oversight hearing on the Alaska National Interest Lands Conservation Act, a 1980 law that protected more than 100 million acres of federal lands in the Last Frontier State but that many Alaskans today feel has been flouted by the Obama administration. "Embedded was a promise," he said. "A lot of Alaskans feel those promises have not been lived up to." Sen. Lisa Murkowski, who chairs the committee, weighed in on the hearing emphasizing that "The Obama administration is breaking a legal commitment the federal government made to Alaska when it agreed to place over 100 million acres into conservation status. Alaska will give no more." The hearing is scheduled forThursday, Dec. 3, at 10 a.m. in 366 Dirksen. Reprinted from E&E Daily with permission from Environment & Energy Publishing, LLC www.eenews.net. 202-628-6500.
Can we get some help too? An Alaska Dispatch News commentary highlighted the fact that a federal agency is already subsidizing competing LNG projects in two foreign countries targeting the same potential buyers. Projects in Australia and Papua New Guinea have received aid from the Export-Import Bank of the United States in a sustained effort to promote American business interests abroad. Sen. Lisa Murkowski noted the potential for Alaska to capitalize on similar aid, remarking on the fact that Alaskan companies "have not taken advantage of the Export-Import bank." The federal government sent nearly $6 billion – mostly in the form of direct loans - to each of the overseas projects and both projects combined would produce a FRACTION of what AKLNG will generate. While recent Congressional inaction has rendered the application of the loans moot, it highlights the importance of maintaining an appealing environment for investment.
Filling the Fiscal Gap with Silence. In an Alaska Dispatch News op-ed, Randy Hoffbeck and Dr. Scott Goldsmith continued to raise doubts with Gov. Walker's likely overhaul of Alaska's fiscal policy, specifically, that "doing nothing — continuing the status quo — will guarantee fiscal and economic disaster for the state." The pair emphasize the point that cooperation will be crucial going forward. Like Hoffbeck and Goldsmith, Headlamp is paying close attention to how the governor plans to handle Alaska's financial situation.
Friday is Go/No-Go Day. The December 4th AKLNG approval vote is approaching quickly. Stick with Headlamp to stay up to date on what's important.
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11-24-15 On Being Positive About Alaska's Investment Climate - Big Pipelines Alberta Carbon Policy "Winners"?
|Here is our archive reference to the Resource Development Council's important, 36th ANNUAL
ALASKA RESOURCES CONFERENCE
Seeking Alpha: Enbridge and TransCanada seen as winners from Alberta's carbon policy
Comment: "On Being Positive"
This ADN piece (Left column) by Nathaniel Herz provides additional insight into the attitude and leadership style of Alaska's governor.
Readers will be interested, as well, in this compelling essay on gubernatorial leadership written by retired BP pipeline executive, Al Bolea (NGP Photo).
At times, we have lamented on how our work these days tends to fall on the negative side. We are, therefore, delighted that Al has produced such a positive piece, the blueprint for an Alaskan governor desiring to successfully run the large and complex State of Alaska - and provide the necessary leadership that could lead to construction of an Ak-LNG project.
Meanwhile, we continue to look for positive signs that Alaska's investment climate is positively supported by both Alaska's elected leaders and the Washington D.C. players.
While we are forced to note that ours is an investment climate long ignored or abused, and that may seem to some to reflect negativity on our part, there are rays of hope and Bolea has offered one of them.
Another occurred this weekend when a dear friend and former colleague, Tom Brennan (NGP Photo), described the enormous contribution being made by ConocoPhillips under the leadership of longtime Alaska energy executive Joe Marushack (NGP Photo).
...other rays of hope and light which we are quick to acknowledge.
While we celebrate "hope" in approaching Thanksgiving Day, we are also reminded of the sage advice given by a longtime friend, energy analyst and utility manager Joe Griffith (NGP Photo) who gently reminds fellow Alaskans that, "Hope is not a strategy", a precept to which we believe Al Bolea and Joe Marushack would also subscribe.
To our American readers: Happy Thanksgiving Wishes for Thursday!
(And...remember the reason for the season!)
ADN by Nathaniel Herz. ... Larry Persily (NGP Photo), the former federal gas pipeline coordinator who now serves as an oil and gas adviser to the Kenai Peninsula Borough mayor, said that a new executive with more technical expertise and experience seems to match Walker’s vision for an expanded role for Alaska in the pipeline project.
But the shakeup in the corporation’s board and management, he added, is creating turmoil for the project. So are other recent changes made by the Walker administration, including to the positions held by a pair of highly paid consultants who were heading Alaska’s efforts to negotiate the details of the project and sell the state’s gas.
“Markets (and) buyers don’t care for turmoil,” Persily said in a phone interview. “It needs to be settled; the market needs to be reassured that this isn’t going to happen on a frequent basis.”
One other source of uncertainty was a move by the state corporation’s board Saturday to postpone a vote on the pipeline project’s budget for next year.
A key meeting to approve that budget is scheduled with the oil companies for Dec. 4, and the board rescheduled its own vote to Dec. 3.
Walker said at his news conference that he is “very optimistic” that the board will approve the budget at its Dec. 3 meeting. But he said that he views the state’s authority over the budget as leverage to make sure the oil companies sign formal agreements making their gas available to the pipeline project if they decide not to continue as participants.
“By approving the work plan and budget today, there’s no incentive for us to receive those assurances,” he said. “We’ll see what we get. We’ll make that decision when we get to that point.” (Full story here)
Analysts are betting that renewable energy developers such as Enbridge (ENB+1.2%) and TransCanada (TRP +1.9%) will be among the best placed to make the shift to Alberta's new carbon policies, Bloomberg reports.
As the government boosts the province’s share of renewable electricity to 30% from 9% by 2030, "renewable power contracts are going to go to the bidder that needs the least amount of government support, developers with most financial flexibility and overall lowest cost of capital” such as ENB and TRP, says National Bank Financial's Patrick Kenny.
The two companies already are among Canada’s largest renewable power operators: ENB owns 2,065 MW of wind power across Canada, enough to power 650K homes, while TRP operates wind, hydro and nuclear plants as part of its 11.8K MW of power generation.
|Comment: Honestly, we do keep looking for good news, but in this case must temper the Governor's enthusiasm with a state senator's suspicions. Investment climates are not hurt when criminal acts are identified and prosecuted. But when politicians make allegations, stimulating investigations based on a 'desire' for lower prices, honest investors can be hurt and the investment climate is not helped. -dh
Today (From September 9, 2015), Senator Bill Wielechowski (NGP Photo) sent a letter to Alaska Governor Bill Walker and Attorney General Craig Richards requesting an update of the Attorney General’s report on Alaska Petroleum Products Pricing Investigation to examine the reasons behind the high gas prices in Alaska as compared to the lower 48 states.
“One of the benefits of low oil prices should be a decrease in prices for gasoline and heating fuel. That’s the case around the country,” said Sen. Wielechowski. “With the closing of the Flint Hills refinery, we’ve been seeing a narrowing of the players in the refinery industry in Alaska allowing for less and less competition. Alaskans deserve to know if the near-monopoly in the refining business in Alaska is the cause for their pain at the pump.”
Currently, Alaska has the highest gas prices in the country. These high prices coupled with the high cost of living in Alaska is hampering economic development and taking money out of the pockets of hard-working Alaskans.
Governor Bill Walker's Response To Tesoro Alaska's Announcement
“I congratulate Tesoro on its announcement that the company will be acquiring a portion of Flint Hills Resources’ Alaska-based assets. Tesoro has had a long and successful history working in our state, and this acquisition will allow them to better serve their customers and communities across Alaska. This news further proves that business is alive and well in Alaska, and investors are optimistic about the opportunities that lie ahead in our state.” – Governor Bill Walker
ALASKA RESOURCES CONFERENCE
November 18-19, 2015
Dena'ina Civic & Convention Center
WEDNESDAY, NOVEMBER 18TH
Eye-Opener Breakfast in Exhibit Area – Sponsored by Wells Fargo
Ralph Samuels, RDC President, Vice President, Government and Community Relations – Alaska, Holland America Group
State of Alaska Update: From Alaska LNG Project to State Fiscal Plan
Governor Bill Walker (video forthcoming)
Alaska Economic Trends: 2016 Outlook
Neal Fried, Economist, Alaska Department of Labor video
Alaska Industry 2015 Year in Review and 2016 Outlook
Oil & Gas: Kara Moriarty, President and CEO, Alaska Oil and Gas Association video
Fisheries: Ricky Gease, Executive Director, Kenai Sportfishing Association pdf video
Forestry: John Sturgeon, President, Koncor Forest Products video
Mining: Karen Matthias, Managing Consultant, Council of Alaska Producers pdf video
Tourism: Scott Habberstad, Director of Sales and Community Marketing, Alaska Airlines pdf video
Keynote Luncheon: Sponsored by Northrim Bank
It’s Still North to the Future: Moving Ahead in the Arctic
Wayne Westlake, President and CEO, NANA Regional Corporation pdf video
Rex Rock Sr., Chairman and President, Arctic Slope Regional Corporation video
Alaska Can’t Quit Now: Why the Arctic Still Matters
Randall Luthi, President, National Ocean Industries Association video
Gourmet Break – Sponsored by Colville, Inc.
Pebble vs. EPA: Finally Some Real Progress
Tom Collier, CEO, Pebble Partnership video
THURSDAY, NOVEMBER 19TH
Eye-Opener Breakfast in Exhibit Area – Sponsored by BP
Real Solutions to Alaska’s Budget Crunch
Moderator: Ralph Samuels, RDC President, Vice President, Government and Community Relations – Alaska, Holland America Group
Cheryl Frasca, Former Director State of Alaska Office of Management and Budget, 2002-2006 pdf video
Mike Navarre, Mayor, Kenai Peninsula Borough pdf video
Give the State Some Credit: How Oil Tax Credits Are Changing Alaska’s Investment Game
Moderator: Kara Moriarty, RDC Executive Committee, President and CEO, Alaska Oil and Gas Association Benjamin Johnson, President, BlueCrest Energy, Inc. pdf video
Casey Sullivan, Director, State Public Affairs, Caelus Energy Alaska, LLC pdf video
Gourmet Break – Sponsored by Stoel Rives LLP
10:30 Communities and Mining: Why it Works
Moderator: Lorna Shaw, RDC Vice President, External Affairs Manager, Sumitomo Metal Mining Pogo LLC
Eric Hill, General Manager, Kinross – Fort Knox Mine pdf video
Jan Trigg, Manager, Community Relations and Government Affairs, Coeur Alaska – Kensington Gold Minepdf video
Wayne Hall, Manager, Community and Public Relations, Teck pdf video
Rosie Barr, Vice President, Lands, NANA Regional Corporation pdf video
11:30 Networking Break
Noon Keynote Luncheon: Sponsored by Holland America Line Navigating Alaska’s Inside Passage and Policy
Moderator: Ralph Samuels, RDC President, Vice President, Government and Community Relations – Alaska, Holland America Group
Linda Springmann, Vice President, Deployment and Tour Marketing, Holland America Line pdf video
1:30 p.m. Progress Report on the Alaska LNG Project
Moderator: Jeanine St. John, RDC Executive Committee, Vice President, Lynden
Steve Butt, Senior Project Manager, Alaska LNG Project pdf video
Dan Fauske, President, Alaska Gasline Development Corporation pdf video
Mike Navarre, Mayor, Kenai Peninsula Borough video forthcoming
3:00 Grand Raffle Drawing Send-off Champagne Toast – Sponsored by CLIA Alaska