Why Shouldn't The State Take Control of Oil & Gas and Other Natural Resources?
We're not saying Alaskan politicians are beginning to control everything. However, controlling oil and gas is a big step toward socialism and controlling a gas export project (and a municipal distribution project) are decisive first steps in that direction. Alaska became great because of a free market, not because of dictator-governors who wanted to, "fundamentally change Alaska's freedoms". dh (Photo: Alaska Governor Bill Walker)
Today's Commentary: "This is big"
Below is part of an email blast from a Matanuska Valley business woman named Beth Fread. She has arranged for one of Alaska's most effective, liberal activists, David Gottstein (NGP Photo) to make a presentation on his ideas for forwarding the marketing of Alaska North Slope Natural Gas.
We encourage readers to attend the Friday meeting.
Why? Because we believe Gottstein has long been involved in oil and gas taxation issues and that his ideas are not inconsistent with the direction Governor Bill Walker is taking toward controlling the means, transport and distribution of natural resource production in Alaska, beginning with natural gas.
Understanding Gottstein's position, therefore, will enable listeners to more carefully define their own reasonable reactions to it.
Knowledge is power.
Here are links to two documents that Ms. Freid mentions in her meeting invitation:
Below is information on Ms. Freid's meeting:
"Mr. David Gottstein has a different opinion and an alternate set of research criteria for the LNG pipeline than has been put forth in the other news sources I am using. He has offered to come out here this Friday for a presentation of this information. Some of it is based on the attached documents. Please be warned, this perspective may rock your boat!
"The presentation will be made in the back room at Mat-Su Family Restaurant. No-Host dinner at 6:00 pm, meeting at 6:30 pm.
Looking forward to seeing you there ...
Our Opinion: "How the Ak-LNG project and Alaska's fiscal crisis are related"
As we direct readers' eyes to the right column commentary, we restate our opinion: Spending a moderate amount of public official time and public debate on supporting private sector efforts to monetize Alaska gas is prudent.
Spending inordinate amounts of time, as Alaska's governor is, attempting to control resource development in Alaska is a fool's errand to deliver the state into socialism and chaos.
Exacerbating the foolishness of current "I want government to control the gas pipeline since, 'IT'S OUR GAS'", is the continuous negative meddling of the governor causing project delay.
Since any LNG export project cannot provide significant economic support to the state before 2025, the state's deficit spending culture will be defunct before a gas project can even partially resuscitate it. Although, we note, the state probably can deficit spend long enough to complete the current governor's term and the pension sensitive terms of all current Legislators.
The citizens most adversely affected by current "government should own and control the gas pipeline," are rural residents, mostly Alaska Natives, who will find it harder to 'go South' as the economy heads South.
Also, everyone knows that rural residents' somewhat idyllic "subsistence lifestyles" are heavily subsidized by government provided checks, food stamps, health care (including air transport to Anchorage Native health facilities), roads, airports, education, ports and fuel subsidies.
Those beneficiaries could likely learn the hard way that poor financial policy decisions being concocted in Juneau today -- particularly the many poor decisions affecting the petroleum wealth feeding Alaska's economy -- will hurt rural residents more than those in the state's largest cities.
And this relates to Alaska's fiscal crisis.
Some politicians seem to be trying to mesmerize citizens with shiny objects like 'controlling' 10-year-away, distant gas pipelines. When citizens are distracted by a far away project, it is easier for them to ignore such critical, here-and-now issues as solving Alaska's huge fiscal crisis.
Alaska's fiscal crisis can only be solved by creating a 'sustainable economy'. A sustainable economy in a remote, climate and geographically-challenged state like Alaska, can only be achieved by constantly supporting oil and gas, mining, commercial fishing, timber and other natural resource, wealth producing industries...and, by controlling public spending.
- Dramatically cut government spending, especially the doubling of costs added in the last decade, and
U.S. News by Pete Sepp. Punitive taxes on the oil industry will not fix Alaska's budget problems, but will hurt its economy....
not taxing the wealth producing natural resource industries -- including oil -- any more than they are paying now, and
- supporting, not interfering, with efforts of private industry to invest in oil and gas (i.e. especially gas pipeline) and mining and fishing and timber activities in the state, and
- not demonizing the very natural resource industries that the constitution and statehood act depended on to sustain Alaska's economy, and
- only considering additional, job killing taxes and fees when the above actions have been taken.
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.
U.S. Sen. Lisa Murkowski, (NGP Photo), today commenced debate on the Senate floor of S. 2012, the Energy Policy Modernization Act of 2016. During remarks on the Senate floor, Murkowski highlighted the benefits of the bipartisan. This is the bill promoted below by Senator Barrasso. More here, including video!
"Own Worst Economic Enemies"
Commentary: We have shown on a number of occasions over the years, including this one, that Alaska is often its own worst enemy.
Add the U.S. for refusing TransCanada's Keystone XL pipeline and for delaying or killing countless other energy related projects.
Today, we see more evidence that Canada does not want the US to out class it in the area of self-inflicted economic pain.
In today's Seeking Alpha readers will learn that Canada's government is seeking to delay an already ponderous regulatory process to consider global warming implications of pipeline projects, including one of TransCanada's.
Meanwhile, China and India smoke away with impunity while Canadian and US liberal leaders compete to sacrifice their clean economies on the "kill capitalism global warming altar" -- at the behest of their environmental activist handlers.
Russia, China, India and middle eastern countries are so out playing North America on the propaganda, economic, energy and military chessboards that the former are well positioned in the very near future to dominate the latter, in growing numbers of ways.
Yesterday, U.S. Senator John Barrasso (R-WY) delivered the following remarks on the Senate floor highlighting the need to speed up exports of liquefied natural gas (LNG) to countries that do not have free trade agreements with the United States.
Sen. Barrasso and Sen. Martin Heinrich (D-NM) authored the provisions included in S. 2012, the Energy Policy Modernization Act – which the Senate is presently debating – that would expedite the permitting process for LNG exports.
Transcript of Senator Barrasso’s remarks:
“I want to thank the distinguished chairman of the Energy Committee.
“She does a remarkable job and has brought many people together on this bipartisan piece of legislation, which passed the committee 18 to 4.
“And people are energetic about this energy bill, because it is such a critically important thing for our communities and our economy.
“And so I come to the floor today as the Senate is discussing this important energy legislation because energy is one of those areas where we should actually all be able to agree on, in terms of the basic idea.
“The basic idea and my goal for this energy bill is that we make energy in America as clean as we can, as fast as we can, and do it in ways that don’t raise costs on American families.
“I think that most of us would consider this to be a worthy, commonsense goal.
“That’s why the energy bill before the Senate today is so important – and why it has such broad, bipartisan support.
“As I said, the bill passed the committee by a vote of 18 to 4.
“And this is a bill that actually takes concrete steps to help our country produce the energy that we need.
“I think one of the good ideas in this bill is a provision to speed up permitting for exportation of liquefied natural gas.
“Six Democrats have co-sponsored this language on LNG exports as a separate piece of legislation, which is now incorporated into this energy bill.
“That’s because senators from both sides of the aisle recognize the importance of natural gas to our economy, as well as to our national security.
“America has the world’s largest supply in terms of natural gas, in terms of what we are able to produce today.
“We also have the resources to be a major exporter of this clean and versatile fuel.
“It’s estimated that liquefied natural gas exports can contribute up to $74 billion to America’s gross domestic product by the year 2035.
“All we need is for Washington to give producers some regulatory certainty – certainty that is not there today.
“To liquefy and to export natural gas requires special production and special export terminals.
“And the Department of Energy has been very slow under President Obama, and very unpredictable, about approving these projects.
“Now, the energy bill would expedite the permit process for LNG exports to countries around the world, countries that we do not have free trade agreements with right now between those countries and the United States.
“So it opens it up to new markets, new customers, people who are our friends and allies who want to buy a product that we have right here for sale.
“This legislation would require the Energy Secretary to make a final decision on an export application within 45 days after the environmental review process is completed.
“It would also provide for expedited judicial review of legal challenges to the LNG export projects, because things can get tangled up in legal challenges that can go on for months and years.
“Finally, the bill requires that exporters publicly disclose the countries to which the LNG is delivered, so the American people know who we’re selling to.
“Now, this legislation doesn’t force the administration to approve the projects.
“It doesn’t shut down the environmental reviews – it doesn’t take away anybody’s right to voice their opposition.
“It just says that the Obama administration should do its job in an accountable, timely, and predictable way.
“Now, this legislation will help create jobs.
“It would help to reduce our trade deficit – which is something that President Obama has said is a priority of his.
“It would also help the security of America and our allies – now, that’s something that should be a priority for all of us in this body.
“Speeding up American exports of liquefied natural gas will give our allies an alternative for where they can get the energy they need.
“It will help our allies reduce their dependence on gas from hostile places, many of whom are getting it right now from Russia.
“Remember, Russia invaded Ukraine largely to get control of the gas pipelines there.
“Now Iran wants to step up its natural gas business as well.
“The Iranians had been working on a liquefied natural gas export plant that is almost complete.
“Construction had stalled a few years ago because of the economic sanctions against Iran.
“Well, now that the administration has lifted the sanctions, Iran can start up construction again.
“The managing director of the National Iranian Gas Export Company says that it could start shipping liquefied natural gas to Europe in two years.
“That was in an article in the Wall Street Journal today, Mr. President, today.
“Here’s the headline: ‘Iran Seeks Ways To Ship Out Gas As Sanctions Ease.’
“Here it is, today.
“This is incredibly timely what we’re discussing here on the floor of the United States Senate.
“When you read through the article, it says that ‘European companies are promising billions in new deals in Iran as the Iranian President Rouhani visits Europe this week to revive trade and political ties.’
“So Iran is on the move.
“The Obama administration, as of right now, is shackling American natural gas – shackling production, shackling the export.
“At the same time the president, through his agreement with Iran, is enabling Iran to move forward seeking ways to ship out gas as sanctions ease.
“If our allies are dependent on gas from Russia, or Iran, or from both, how does that make the world a safer place?
“This administration has been dragging its feet on approving liquefied natural gas exports.
“It’s blocked North American energy projects in the past, like the Keystone XL pipeline that would have created thousands of jobs.
“Then, earlier this month, the Secretary of the Interior halted all new leases on mining coal on federal land.
“This action by the administration, it is alarming, it’s drastic, and it is destructive.
“Forty percent of all coal production in the United States comes from federal land.
“The Interior Secretary wants that coal to stay in the ground – wants it to become a stranded asset.
“With this new rule, she took one more step toward wiping out the jobs of thousands of Americans – and then she staged a press conference to brag about it.
“If that weren’t bad enough, last week the administration announced new restrictions on oil and gas operations on federal land and on Indian land.
“The unelected, unaccountable bureaucrats of the Obama administration have been relentlessly attacking American energy producers with new rules, new regulations, hurting our economy.
“They are costing American workers and families billions of dollars – and they will do great damage to American energy reliability.
“And reliability is key, Mr. President.
“We need a different approach.
“It is essential that we create as much energy as possible here at home – and it is essential that we be able to export American energy to our allies, as well.
“People who want to get it from us.
“That’s why energy is called the master resource, and it’s why this energy bill is so important.
“This legislation is a good start toward making sure that America has the energy we need to keep our economy growing.
“Now, there are things that we can do to improve this legislation.
“We can use this bill to protect Americans from President Obama’s reckless attempt to end coal leases on federal lands.
“We can also make sure that the Obama administration stops its unwise new rule on natural gas and oil operations.
“We can actually capture more energy while we reduce waste and emissions from this kind of oil and gas production.
“I’ve introduced bipartisan legislation that’s going to expedite the permitting process of the natural-gas-gathering lines on federal and Indian land.
“These are pipelines that collect unprocessed natural gas from oil and gas wells, ship it to a processing plant, and then on to interstate pipelines.
“Today a lot of that gas is flared off right at the well.
“You can see these at the well – flames.
“One of the reasons that’s happening is because the Obama administration has been so slow about granting the permits for the natural-gas-gathering lines on federal land.
“People want to build them, they want to use this natural gas, the president opposes the flaring – more gathering lines would mean less flaring.
“It’s good for energy producers, it’s good for the environment, and it’s good for taxpayers.
“Mr. President, we need the energy.
“Keeping it in the ground is not the answer.
“The answer is making energy as clean as we can, as fast as we can, without raising costs on American families.
“I believe that’s a better approach.
“A bipartisan group of members of this body know that it’s a better answer.
“It’s time for the Obama administration to join us.”
Alaska's Fiscal Crisis Takes Center Stage
See Alaska Headlamp today for more on government spending....
Juneau Empire by James Brooks. John Tichotsky, chief economist for the Tax Division of the Alaska Department of Revenue, told legislators that global oil production outpaced demand by almost 2 million barrels per day in 2015....
(Note to readers: Please help us assure the accuracy of these archives. Let us know of any factual additions/corrections needed in any of our news or editorial material and we will initiate immediate changes!)
Yes, we know what center stage is. For an actor, it is the coveted place of maximum visibility. It is the forefront, the center of the audience's attention.
We can approach a real stage in a theater--like the character in the photo. Or, we can appear in virtual center stages of life: on a basket ball court, in a pulpit, before a political body or in our daily jobs and personal lives.
Today, we think of the virtual stage upon which our political decision makers now begin the 2016 legislative performance. We particularly focus on the fiscal challenge they face. Like theater critics, the voting audience analyzes how they have acted and how they are now performing in the bright spotlight of Alaska's center stage.
Yogi Berra: "It's tough to make predictions, especially about the future." From our Aussie Blogger Friend....
CBC. Montreal Mayor Denis Coderre dialed back the rhetoric on the Energy East pipeline project Tuesday, coming out of a meeting with Prime Minister Justin Trudeau.
Was it Albert Einstein who defined insanity as
"doing the same thing over and over again and expecting different results?"
Please review our 49North "Fiscal Crisis" column written in 2002; believe me, it is well worth reviewing now! Here are a few quotes:
Observation. Many of our readers care about common sense and history, and wisdom. Many of our fellow citizens might wish to apply historical lessons to Alaska's circumstances. For those who do, examples are both well known and numerous.
We think that philosopher George Santayana was the first to observe that those who ignore history are condemned to repeat it, but other great leaders have used variations of the term again and again.
Alaska's leaders -- decade after decade -- have ignored their own state history as, year-by-year, the state economy becomes less sustainable.
In recent years, knowing what lies ahead, Alaskan citizens have continued to move, lemming-like, toward a fiscal cliff that the Institute of Social and Economic Research has clearly described for two decades.
More recently, the late, great Yogi Berra might agree with Einstein's definition of insanity and suggest Alaska must live in a world of, Déjà vu all over again."
But we do sympathize with leaders. It is hard to be diplomatic, great, and independent thinking, and analytical and persuasive and wise and popular all at once -- especially when one has to choose between reelection and, in this case, creating a sustainable budget that involves many kinds of sacrifice.
Yes, we empathize with the Governor and Legislators. But with that courtesy out of the way, we expect action that produces a sustainable economy, "sooner".
For "later," only means kicking the can further down a more unsustainable path. Another delay, another repetition of history, can only exacerbate the inevitable result of inaction: bankruptcy of the State of Alaska and a return to wardship of the federal government.
We hope that this sobering thought is sufficient to provide motivation as has never before been seen among Alaska's decision makers.
Alaska's fiscal crisis is that critical, isn't it?
With best intentions, they fiddled with spending money they don't really have on equity (i.e. risk) ownership of an unproven gas pipeline/LNG concept that could not come to their financial rescue for ten years, if then.
For the past three years, they fiddled with the idea of using precious, public funds to bring expensive North Slope or Cook Inlet gas/LNG to Fairbanks when consumer interest in converting from fuel oil in our current low oil-cost environment, is low. (i.e. the Interior Energy Project, IEP)
Meanwhile, center stage, the fiscal future of the state is in flames while political actors fiddle back stage with issues that are virtually unimportant compared to the conflagration poised to consume them and their constituents: an unsustainable state budget.
The truth hurts us all, but recognizing truth is the first step toward recovery and future success. The truth is that Alaskans have done a poor job of converting the incredible wealth allotted to them by virtue of their geographical location--into sustainable prosperity.
Imagine this situation.
Say it is 1977. The 800 mile Trans Alaska Pipeline System has just begun transporting Alaska's black gold to market. The state operating budget, compared to today's nearly $5 billion, is about $350 million. (Fiscal Crisis References Here)
You are in charge of managing Alaska's projected wealth calculated to be in the scores if not hundreds of billions of dollars.
Some are calling for restraint because, after all, force majure, the end or beginning of an oil embargo and a thousand other factors could affect that single, monopolizing, undiversified income stream of life-sustaining oil.
Others are crying for you to "Spend it while we have it" (Note).
What are you going to do?
You poll your constituents:
Question One: Check One Option.
- __"Should we continue to operate a moderate government to serve our existing citizens, and save the overwhelming majority of income for later ... and reasonably tax industry solely for the reasonable needs of the state?"
- "Or, __ should we continue to raise taxes until Big Oil cries "Uncle!", and spend it while we've got it?"
Question Two: Check One Option.
- __ "Should we create a modest budget designed to primarily benefit Alaska's current citizens and their offspring -- that generally increases no faster than population and inflation?"
- Or, ___ "Should we continue to raise industry taxes and spend as much as possible on grants, infrastructure, education, subsidies and programs that also has the effect of attracting waves of new immigrants seeking the benefits of the wealth?"
Question Three: Check One Option
- ___ "Should Alaska's operating budget (i.e. and municipal and education budgets), on a per capita basis, be generally in the median of per capita Lower 48 spending -- perhaps with an adjustment for higher Alaska transportation and wage costs?"
- Or, ___ "Should Alaska develop its budget with more regard to funds available than with regard to the level of per capita spending?"
Question Four: Check One Option
- Should Alaska have a competitive oil tax system -- not higher than the median oil and gas tax level paid in other oil producing states and democracies -- that remains generally constant with a bias toward providing increased tax revenue as our stable tax environment attracts more investment and production?"
- Or, ___ "Should Alaska disregard its competitive position with respect to other oil producing states, neighboring provinces, other world democracies and investor interests and tax as much as we can to fund the needs solely as defined by annual gatherings of legislators?"
Question 5: Check All Preferred Options
- ___ Forty Years from now, in 2017, Alaska should have ... the highest per capita state spending in the nation; and
- ___ Alaska should have the highest per capita debt of all states; and
- ___ Alaska should create the highest number of partly government supported non-profit organizations in the United States; and
- ___ Alaska should have one of the highest oil and gas tax structures in the free world; and
- ___ Alaska's oil tax history should have been highlighted with exorbitant tax hikes and even with retroactive taxation; and
- ___ Alaska's PERS/TERS unfunded liability should be about 20 or 30 times more than our WHOLE 1977 budget; and
- ___ We should be incurring a 2017 budget deficit ten times the size of our complete 1977 budget at a time when the Trans Alaska Pipeline System (TAPS) produces 85% of the operating budget, is 3/4 empty and oil prices are 3/4 lower than they were when the 2015-16 budget was created?
- ___ We should continue funding state, municipal and education budgets -- with relatively minor cuts -- after virtually doubling them over the last decade. (i.e. because while everyone knows you can spend yourself into prosperity, you cannot possibly cut yourself into sustainability.)
Well, that is all water under the bridge, though it is useful to review past decision making.
We can agree some degree of government operating and capital spending was undoubtedly good over the years.
But, if past decisions did not lead to good solutions, in general, they should not be repeated. If past decisions resulted in economic strength and a sustainable way of life, perhaps those principles could be revisited.
Today, no one believes that the past tax and spend decisions have led to an overall favorable outlook, today.
If that be true, perhaps a different approach, different values, different decisions are in order. (See definition of 'insanity', above, right column.)
If the actors at Alaska's center stage will in the current legislative session produce decisions leading to a sustainable economy, perhaps a grateful audience of constituents will rise in ovation, inviting the players to provide an encore.
At least, Alaskans can work and pray toward such an outcome.
* * *
Let us state very clearly here and now: "Raising natural resource taxes will not help sustain Alaska's economy. It may help to temporarily "balance" a failing budget for a year or two but, in fact, increasing industry costs will excite the decline of investment, further endangering economic sustainability."
Alaska's Fiscal Crisis References
Note: over the years, Alaskans developed a fairly provincial, myopic way of looking at world competition. Instead of positioning themselves for a day in which production might be lower or the value of production lower, they instead argued for maximum industry taxation and a robust spending program. During these years, it was sometimes difficult to distinguish liberal from conservative lawmakers. Because there was so much taxation and so many dollars, it was hard for members of either party to say "no" to members of the other party. Gridlock was avoided, basically, by unanimous agreement to spend every available dollar on a mind boggling array of programs and projects. In order to justify the high level of industry taxation and spending over the years, advocates of these policies accrued public support by demonizing the oil industry and appealing to the greed of citizen beneficiaries of programs and projects. Following are some of the rather silly, anti-investor slogans and themes we have observed over the last 4-5 decades on the Alaska political stage:
"It's our oil!"
"Canada's Gas, My Ass"
"My Way Is The Highway"
Petroleum News by Kristen Nelson. The Alaska Support Industry Alliance’s “Meet Alaska” conference heard a ConocoPhillips perspective on the Alaska LNG Project Jan. 8 from Al Hirshberg, the company’s executive vice president for technology and projects.
Hirshberg listed mega project critical success factors and said they fell into three buckets: alignment among all the players; a strong effort to identify project risks and putting together a plan to manage risk; and economics - driving down the cost of supply enough that the project can be successful in the marketplace.
Challenges for the Alaska LNG Project, prior to final investment decision, include commercial agreements between all co-venturers, including the state; certainty around fiscal terms; FERC/state permitting issues; and global LNG project competition, he said.
With smaller projects commercial agreements could be pushed out in time, Hirshberg said, but with a project the size of AKLNG those agreements need to be locked down in the pre-front-end engineering and design phase.
Commentary: Does anyone still doubt that Alaska -- and its BC competitor friends -- face daunting worldwide, LNG competition?
LNG demand will be filled by the projects and their government supporters presenting the best economics to potential customers.
Governments desiring world-class LNG projects might also be well advised to treat their petroleum industry investors with good will and fair dealing.
Hostility and unstable fiscal regimes do not stimulate investment interest in a highly competitive world, if they ever did. -dh
Hirshberg also reviewed the global LNG market. The total world demand in 2014 was 200 million tons per year, he said, with the demand through about 2025 projected at another 200 million tons per annum.
Of that 200 million, about 140 million is already spoken for, he said, leaving about 60 million tons, of which Alaska is about 20 million tons.
Chasing that are announced discoveries of some 780 million tons per annum, of which about 210 million tons are in projects spending serious money on engineering, some three to four times the estimated need.
Please enjoy Larry Persily's (NGP Photo) Alaska gas/LNG related links TODAY!
From our anonymous Aussie energy analyst today, several points of interest re: oil and gas prices and the state of LNG..., and, ISIS NEEDS (FEARLESS) OIL AND GAS EMPLOYEES....
ADN by Yereth Rosen. A coalition of environmental groups filed a motion Wednesday to intervene in support of the Interior Department’s decision to reject Royal Dutch Shell's request to extend its offshore Arctic leases.
The groups filed their motion with the Interior Department’s Board of Land Appeals, an agency tasked with reviewing disputed department rulings.
Our comment: The agency appeal process generally tends to side with the agency's position. But going through it is a step toward a court appeal, which is more objective and whose decision is more honestly based on the record, hopefully. We wish Shell well in this process and to the enviro-activist groups seeking to impose more delay or roadblocks, we say, "Enough is enough; go away." -dh
From our anonymous Mid Atlantic energy analyst comes word today that low energy prices are creating deficits among middle eastern producers as the cost of production exceeds the value of oil produced. -dh
OP-Ed by Rich Coleman, BC Minister of Natural Gas Development. British Columbia’s liquefied natural gas industry made unprecedented progress this year.
The first final investment decision was made by Pacific NorthWest LNG, marking their commitment to move forward with construction and operation. That pledge had two conditions; with the first requiring government to finalize a project development agreement with them, which we did.
The other outstanding condition – environmental approval by the Government of Canada – is scheduled for a decision in 2016. ... That could all happen while the expansion of FortisBC’s Tilbury LNG facility continues in Delta which has already provided $50 million in contract work to over 100 companies in neighbouring communities like Vancouver, Langley, Abbotsford, Coquitlam, and more.
These are positive developments for just three of the 20 facilities now proposed in our province. Other exciting news included LNG Canada finalizing the very first substituted environmental assessment in our province, keeping their proposal on track to be one of B.C.’s most promising export operations. Full story here....
Mining.com by Cecilia Jamasmie. New climate change regulations, fraud in e-payment systems, “poison pills”, privacy class actions and cybersex in the workplace are among the top 10 legal risks companies operating in Canada will face this year, according to Canadian law firm Borden Ladner Gervais LLP (BLG). -- and -- Canadian Oil Sands is claiming victory over Suncor Energy’s $4.3 billion hostile takeover attempts
From our anonymous Mid Atlantic energy analyst comes word today that low energy prices are creating deficits as the cost of production exceeds the value of oil produced. -dh
Comments, from Bernstein Research today, summarize well the current financial state of Saudi Arabia (SA), relative to its cash reserves. They also show why SA is considering an IPO in the depths of the current oil price decline: THEY NEED THE MONEY.
We are strongly in the camp that Saudi Aramco will only include downstream assets (or at best throw in a small amount of dedicated production from some minor upstream capacity). There are a host of reasons:
· Large-scale upstream assets within a public entity would involve disclosures and fiduciary compliance to which they would never agree
· Such an offering would be wildly unpopular within the country, and the House of Saud has always to consider its actions in the eyes of the Wahabis
· The company is adding significant gas production and processing capacity over the next couple of years, which will require capital infusions that cannot be taken out of normal cash flow in these troubled times.
· The Saudis find themselves in the classic “Run Away From the Bear” race. They do not have to outrun the bear; they just have to outrun the others who are also trying to outrun the bear. As dire as their draw on their cash reserves might seem, they are in much better shape than a lot of others in the race.
The similarities between the current oil price crash and that experienced in the mid 1980s has been remarked upon by many. This is illustrated by the following quote from Daniel Yergin’s The Prize, commenting on the sector in 1986: “Many oil companies were unprepared for this latest crisis, their executives having been convinced that “they” – OPEC – would not do something so silly as to eradicate a large part of their own revenues”.
The Wall Street Journal reported yesterday that Asian LNG demand in 2015 declined (including a first ever decline from China). This was notwithstanding the very substantial spot and contract price falls and increased regional supplies.
The EIA weekly report issued yesterday was largely negative. Crude stocks increased by 0.2 mmbbls – and worse news came from a substantial build in product stocks (gasoline by 8.4 mmbbls and distillate by 6.1 mmbbls).
Reuters recently noted that the US oil and gas industry itself was a cause of declining demand for distillate (in the form of diesel). Less drilling activity, by more efficient rigs, had reduced total diesel demand in the US
As we noted yesterday (Note new KTVA story), BP is shortly to add another 4,000 souls to the swollen ranks of redundant oil and gas workers that have fallen out of the industry since the November 2014 OPEC meeting.
However, we have come across one organisation in the sector that is currently actively seeking engineers of all stripes: ISIS.
Last week the International Business Times said it had seen documents from ISIS seeking staff to assist it in bringing back to production various assets it had "acquired" in Libya.
It did not disclose the fringe benefits it was offering - perhaps low taxes; multiple wives; a free knife; company uniform (black); etc. (Note of caution to our job hunting friends in Canada, Alaska and the Lower 48: failure to meet daily ISIS production quotas could result in decapitation. -dh)
Global LNG production rose in 2015, but sales to Asia dropped
(Wall Street Journal; Jan. 13) - Liquefied natural gas shipments to Asian economies that are the world’s biggest gas importers dropped in 2015, according to a report published Jan. 13, including a first-ever decline in China. The decline in Asia came as global LNG global production rose 1.6 percent to 250 million metric tons, or 32 billion cubic feet a day, energy consultant Wood Mackenzie said in an annual report on the industry.
The increase in LNG supply comes amid a steep drop in spot-market prices in Asia over the past year to below $7 per million Btu. Prices may remain depressed with the start of shipments this year from the U.S. Gulf Coast and a ramp-up in exports from Australia. The new supplies will help boost global LNG production by an estimated 50 percent over the next five years, which is beyond the capacity of Asia to absorb, Giles Farrer, Wood Mackenzie’s research director for global gas and LNG, said in an interview.
Asia represents more than 70 percent of worldwide demand for LNG, but Wood Mackenzie said demand from the region’s largest buyers dropped in 2015, including a first-ever decline in shipments to China, which fell about 1 percent after years of double-digit growth. South Korean imports of LNG fell 11 percent on the year and shipments to Japan declined 4 percent, the report said. That was offset by growing demand from newer importers such as Egypt, Jordan and Pakistan, the report said. And lower prices for LNG will likely spur increased demand from other markets, Farrer said.
Korea Gas wants to reduce its stake in proposed LNG Canada project
(Platts; Jan.12) - South Korea's state-owned Korea Gas Corp. will press ahead with a long-delayed attempt this year to sell part of its 15 percent stake in the proposed LNG Canada project, a company official said Jan. 12. KOGAS aimed to sell the stake by the end of 2015, but the plan was delayed due to the falling price of natural gas and some delays to the LNG project, a company official said. However, KOGAS will continue the plan to sell the stake this year as part of its efforts to improve its finances, he said.
The official declined to disclose how much the company would sell, but it most likely will be one-third of its stake. KOGAS currently holds a 15 percent interest in Shell-led LNG Canada after selling a 5 percent slice to Shell in May 2014. KOGAS and its partners in May 2013 launched LNG Canada, a project to produce 12 million metric tons per year of LNG from two trains at Kitimat, B.C. Shell holds a 50 percent stake, China National Petroleum Corp. 20 percent, and Japan’s Mitsubishi 15 percent.
The LNG Canada consortium plans to make a final investment decision on the project this year. KOGAS is under pressure from the government to reduce its debt, which has grown after massive overseas projects in the past few years. KOGAS is owned 54.55 percent by the state — 26.15 percent by the central government, 20.47 percent by state power monopoly Korea Electric Power Corp. and 7.93 percent by local governments.
China’s push to cut air pollution could help boost natural gas demand
(Nikkei Asian Review; Jan. 11) - The serious and endemic air pollution that has engulfed major Chinese cities in recent years is not only a growing health threat, but may well have a significant impact on the global market for cleaner-burning natural gas. The formidable environmental challenge forced the government to issue its first-ever air pollution red alert in December. Under the five-year economic development plan that begins this year, Beijing is set to make a concerted effort to reduce air pollution.
The government intends to curb growth in oil and coal use, while promoting renewable energy. Efforts to slash coal consumption, the main contributor to pollution, have barely begun, but there have been some encouraging signs. The International Energy Agency says China’s coal use in 2014 was down 3 percent from 2013, marking the first decline since 1999. And China's maritime imports of coal for power generation fell about 30 percent in 2015 from the previous year, according to Bank of America Merrill Lynch.
Driven by the government's efforts to promote its use, China's natural gas imports will triple from 2014 to 2020, according to British financial services company Barclays. In November, the Chinese government lowered wholesale prices of natural gas for nonresidential users by about 30 percent in Beijing and other major markets, in a move to boost flagging growth in demand for natural gas. The measures taken to push up natural gas consumption also include allowing third parties to use liquefied natural gas import terminals and private-sector companies to build such terminals.
This could be the year for investment decisions on B.C. LNG projects
(Canadian Press; Jan. 10) - After much anticipation, Canada could see final approval of the first liquefied natural gas export projects on the West Coast this year. Proponents behind some of the 20 proposed LNG projects in B.C. say they should be in a position to make final investment decisions this year as environmental approvals, permits and First Nations support fall into place. And while a supply glut has pushed down natural gas prices and reduced short-term prospects, some experts say projects remain viable.
“These are long-term, multi-decade projects,” said AltaCorp Capital analyst Mark Westby. “Current gas prices are only one factor.” However, spot prices for LNG have dropped by more than half in Asia over the past two years. Westby sees the Shell-led LNG Canada facility in Kitimat, and the much smaller barge-mounted Altagas-led Douglas Channel project also planned for Kitimat, as most likely to proceed this year.
LNG Canada’s final barriers are securing assurances from First Nations and a permit from Fisheries and Oceans Canada, while Douglas Channel still needs to settle a 25 percent excise duty being levied on its LNG facility, Westby said. Another possibility is the Pacific NorthWest LNG project led by Malaysia’s Petronas. But Westby said while it remains promising, it faces uncertainty. An environmental assessment should be done by March, but Petronas still has to resolve significant fisheries issues with First Nations.
Mary Hemmingsen, global head of LNG at KPMG, said the drop in oil and gas prices has diminished the likelihood of multibillion-dollar projects going ahead. She said low oil prices have reduced cash flow at project developers, while also making alternatives to LNG cheaper. The “gold rush mentality” that was in place the past couple of years has been replaced by a somber, realistic outlook, she said. “What everyone was chasing two years ago was volume, volume, volume. … Now it’s about value, value, value.”
Australia LNG project ships first cargo; Conoco one of three partners
(Houston Chronicle; Jan. 11) - The first cargo of liquefied natural gas has sailed from the Australia Pacific LNG facility in Queensland, Australia, ConocoPhillips and its partners in the project announced Jan. 11. For the companies behind the project, the cargo is an important first step toward transitioning from a cash-sink to cash-generator after years of construction and more than $17 billion (U.S.) in investment to develop the facility capable of making 9 million metric tons of LNG per year.
ConocoPhillips and Australia’s Origin Energy each own 37.5 percent of the venture; China’s Sinopec owns 25 percent and is its largest customer. Japan’s Kansai Electric Power also has signed contracts for some shipments. The Australia Pacific LNG plant takes coal-seam gas through a 330-mile pipeline from Eastern Australia, liquefies it and then ships the fuel to customers in Asia. The initial shipment came from the plant’s first liquefaction train; a second production train is due online in the second half of 2016.
The project’s backers have continued to pour billions into APLNG despite a collapse in oil prices that has crimped cash flow and dragged down LNG prices across the globe. That collapse has left immediate profitability of the project uncertain — Origin has said it needs oil prices at between $38 and $42 per barrel before it will see positive cash flow from its investment, according to the Sydney Morning Herald. ConocoPhillips said it expects the project to be self-funding after the second train comes online later in 2016.
Oregon LNG developer withdraws lawsuit over proposed plant site
(Daily Astorian; Astoria, OR; Jan. 11) - Oregon LNG has voluntarily withdrawn from litigation with the U.S. Army Corps of Engineers before a federal district court judge could officially dismiss the developer’s claims. The company wants to build a liquefied natural gas plant and export terminal in Warrenton, Ore., near the mouth of the Columbia River, but the Army Corps has asserted its exclusive rights to the proposed plant site under a nearly 60-year-old easement to deposit dredging spoils.
In late December, Magistrate Judge John V. Acosta ruled against Oregon LNG in a lawsuit the company filed against the Army Corps. Oregon LNG failed to prove, Acosta said, that the Corps has abandoned property. Acosta’s ruling still needs to be signed by Anna J. Brown, a federal district court judge, to become official. By choosing to drop its lawsuit ahead of Brown’s signature, the company preserves its ability to refile its complaint against the Army Corps at a later date.
Opponents of the $6 billion terminal and pipeline project welcomed the move as another setback for the company. “The direct implication is that there won’t be an official court judgment saying that Oregon LNG ‘loses,’” said Miles Johnson, a lawyer for Columbia Riverkeeper, an environmental group opposing the project. “It’s just one more legal defeat for Oregon LNG in kind of a long string of them,” he said. “It makes it harder for them to see how they’re going to get this project off the ground.”
Chevron-PetroChina venture starts production at gas field in China
(Bloomberg; Jan. 10) - Chevron and PetroChina started gas production in China’s southwestern regions of Sichuan and Chongqing, eight years after signing a production-sharing agreement. The well in Chongqing’s Luojiazhai gas field began commercial gas production Dec. 30, China National Petroleum Corp., PetroChina’s parent, said Jan. 11. PetroChina in 2008 signed the 30-year agreement with Chevron, under which the U.S. producer took a 49 percent stake in the parcel and became the operator.
The Luojiazhai project, the first phase of development, will produce at its peak an estimated 300 million cubic feet of gas per day, according to the PetroChina statement. China currently consumes almost 18 billion cubic feet of gas per day. Both parties will work on two more phases in the same area. Chevron beat Shell, Statoil and Total to win the right to develop the so-called sour-gas reserves at Chuandongbei. Sour gas refers to natural gas that contains a high level of hydrogen sulfide.
Gulf of Mexico tugboats to benefit from start of LNG exports
(Bloomberg; Jan. 11) - Somewhere in the Gulf of Mexico right now, the Energy Atlantic is headed for Louisiana to collect the first exports from America’s shale gas revolution. Waiting to steer the tanker into Cheniere Energy’s Sabine Pass terminal is a fleet of tugboats that’s spent the past seven years killing time — some days holding emergency exercises, some days racing each other. They were ready to escort ships for natural gas imports, but that never arrived. Now, they will work escorting ships for LNG exports.
“The boats are beautiful — you could eat off the floor in the engine room,” said Richard Ennis, head of natural resources at ING Capital. With the switch to exports, the tugs will at last have a job to do — even if it’s not the one they expected. The surge in oil and gas output from U.S. shale drillers has the potential to transform world markets. At home, it left a chain of idle LNG import facilities from the Northeast to the Gulf Coast. Now, some of those facilities will go to work exporting liquefied natural gas.
It’s about putting to use for export what was not being used to import gas. At Sabine Pass, empty LNG storage tanks designed for the import terminal will be repurposed for exports. And, at last, there’ll be work for the ochre-colored tugboats with their fire-engine-red hulls. They’ll no longer be waiting for phantom ships.
B.C. government will oppose oil pipeline expansion project
(Vancouver Sun; Jan. 10) - The B.C. government will formally oppose the Trans Mountain oil pipeline expansion in a written submission to the National Energy Board. Environment Minister Mary Polak told The Vancouver Sun that the provincial government believes that pipeline proponent Kinder Morgan has failed to provide the NEB with an adequate plan to prevent or respond to an oil spill. “We are asking them not to recommend approval,” Polak said of the Alberta-to-B.C. coast pipeline project.
The B.C. government laid out in five conditions in 2012 that it said all oil line projects would have to meet before they would be allowed in the province. The second and third conditions require “world-leading” prevention and response plans if a pipeline fails on land or if oil is spilled into any rivers, lakes or the ocean. “As far as we’re concerned, we have not seen the evidence in the hearings to support a conclusion that they’ve met our conditions,” Polak said. “So we won’t be supporting their approval at this time.”
The $6.8 billion Trans Mountain project would involve twinning Kinder Morgan’s existing 715-mile pipeline from the Alberta oil sands to its costal terminal in Burnaby, B.C. It would increase capacity between Edmonton and Burnaby from 300,000 barrels a day to 890,000 barrels, and lead to as much as a seven-fold increase in tanker traffic. Kinder Morgan has said it will mitigate increased risks of oil spills by increasing tug escorts in inland ocean waters and beefing up spill-response capacity. “They did not submit evidence of their ability to respond in a world leading way on the land,” Polak said.
Hard to see ‘any company making money’ at $30 oil
(Calgary Herald; Jan. 12) - Crude proved it can indeed go “lower for longer,” falling briefly Jan. 12 to below $30 per barrel before closing at $30.44. “At these prices, I can’t think of any company making money,” said Gary Leach, president of the Explorer and Producers Association of Canada. At a conference in Calgary, meanwhile, a panel of commodities experts agreed that prices will come back — eventually — but no one sees West Texas Intermediate ever getting back to above $105, where it was in June 2014.
Martin King, an analyst with FirstEnergy Capital in Calgary, pointed out that Canadian crudes are being hit particularly hard, with Western Canadian Select, a heavy oil and oil sands blend, recently falling below $20 per barrel. “Prices remain under pressure,” said panelist Michael Wittner, global head of oil research for Societe Generale, listing China’s market turmoil and currency uncertainty around the world as recent influences on the price. But he did predict that oil could return to the $70s by 2020 as cheap oil cannot keep up with demand growth, forcing the market to call on costlier supplies.
Meanwhile, Ed Morse, global head of commodities for Citi Research, said new production from Iran as sanctions are removed in the next month or so will cause ripple effects on global oil markets. “It’s hard to be optimistic over the short term when you have as much inventory being put into storage as we’ve seen happening right now and when Iran is going to put out a significant amount of oil into the market,” he told reporters.