What's next for Keystone XL?
|We urge our gentle readers to review yesterday's posting; we cannot remember -- in well over a decade -- posting a more useful, relevant and actionable commentary for our Alaskan, Canadian and Lower 48 readers. -dh|
Alaskanomics by Mark Edwards.
Over the next couple of days, I will post a three part series about the current oil price environment in Alaska.
It is well known that Alaska’s economy is highly sensitive to the price of oil. Billions of dollars in investment capital flow into the state each year as energy companies both explore for new oil and maintain their existing fields. This activity has an enormous positive multiplier effect on the rest of the economy as major service industries including trucking, construction, finance, legal, engineering, retail and countless others see a direct benefit from the contracts and employment required to support this massive effort. Read more....
TransCanada's Keystone XL:
Our Northern Gas Pipeline (NGP) friends will want to tune in today to Alaska legislative video conferences dealing with
1) AIDEA financing of an Interior Energy Project (10:15 ADT), and
2) Hilcorp discussing Cook Inlet gas/North Slope projects and operations (12 Noon, ADT)
Letter from a reader: Dave: Thank you very much for having provided the opportunity to present to the public the example of injustice that the Orange Hill Taking exposes. Your description of the “War On Alaska’s Future” is excellent. More here (2-24-15)....
Yesterday, we opined that, We continue to wish Alaska's new governor well, but hope there's not a screw loose somewhere....
Today we decided to further refine the story and that will take us another day.
In preparing to critique it, we urge our gentle readers to review yesterday's references and to those we add two more today:
1. Please review our earlier commentary, "It's Our Oil And We Are Sovereign, By Golly!"
2. One of our most astute readers is a natural resource investor from Down Under--not associated with the large Alaskan producing companies.
Being a private, individual investor interested in Alaska and being a firm believer in "due diligence" he has rigorously analyzed Alaska as an "investment climate" for several years.
Last night, our friend penned his own commentary (right hand column) which we appreciate his having shared with us.
His unsolicited, personal views may reflect a number of sophisticated investor views everywhere.
We hope that by honestly and publicly discussing these matters Alaska's new governor may yet become successful and and that the state can avoid any critical, politically caused, train wrecks. -d
A commentary written by our Australian investor friend to his friends and colleagues in Alaska (Please read in conjunction with our 3-1-12 commentary):
I was minded to put fingers-to-keyboard by your Governor’s recent comments on the Alaska LNG and Alaska Gasline Development Corporation projects (AKLNG and AGDC, Aka., ASAP).
They sounded very much like one hears all the time in developing nations: “We are the owners, blah, blah, blah."
Of course, he misses the point here: the State is the freehold owner but it has leased its rights to extract to others on a long term basis, sufficient for those others to book reserves and contingent resources in connection with those extraction rights.
In developing nations it is often easy to understand the motivations of the political leaders who say such things.
Their statements are usually a combination of not being well educated in international commercial and legal matters (and who can blame them) and because they see an opportunity to personally profit from a State’s resources.
I would strongly presume neither motivation applies to Walker, who no doubt is merely (i.e. in his own mind) undertaking a minor political tactical play in connection with appointees to AGDC, etc.
However, does he not realize that LNG projects compete on a global basis and although AKLNG has leapt up the league tables over the last 18 months, its chances of achieving FID are reduced by playing petty politics? (See our commentary on LNG global competition: 1, 2, 3 -dh).
It is of course a complete joke to think that the State of Alaska could by itself somehow “procure” (expropriate?) gas from the Producers and then sole fund, build and market its own LNG project. That's the sort of thing the Government of Mozambique might say.
Anyway, I expect the Producers to just sigh and get on with things - with however another minor reservation in the back of their minds.
(Signed by our Australian friend....)
Alaska Journal of Commerce by Andrew Jensen. The $8 million exacted from ConocoPhillips in order to receive its permit to construct the Greater Moose’s Tooth-1 project in the National Petroleum Reserve-Alaska is a rather elegant combination of old school protection rackets and third world government kickbacks.
BP and Commonwealth North: Two economic reports offer "Good News for Alaska"
Commonwealth North hosted its 9th annual Alaska Assets Review on February 18. The program recognizes that as shareholders of “Alaska Inc.” the citizens of Alaska need to be informed about how the assets of their company are performing. This year Northrim Bank President and CEO Joe Beedle (NGP Photo-L) and former Lt. Governor Mead Treadwell (NGP Photo) presented the performance review. Read full report....
BP’s Annual Energy Outlook also appeared this week; it has become one of the most reliable sources on the topic of the future of energy. According to this new edition of the BP Energy Outlook 2035, global demand for energy is expected to rise by 37% from 2013 to 2035, or by an average of 1.4% a year. (Our continuing question is: with greater worldwide shale production will Alaska cultivate a competitive investment climate benefiting the marketing of its remote natural gas and oil reserves?"
Reader reaction to our Tuesday column, "If I were President....", from retired Executive Director of the Alaska Oil and Gas Association, Bill Hopkins: "Dave Harbour for President! Love your executive agenda, Dave. GO, trooper!" Our readers will be relieved to know that we respectfully declined Bill's nomination. -dh
Alaska's Interior Energy Project (i.e. IEP, natural gas to Fairbanks area. Follow Legislative action.). Below we have the copy of an opinion expressed today by Ray Latchem, Alaska's longtime expert LNG entrepreneur. We believe the momentum behind Governor Bill Walker's (NGP Photo) revised IEP created during Governor Sean Parnell's (NGP Photo) administration is almost unstoppable at this point.
We do wish, however, that other creative ways of inducing the private sector to take on a similar project had not been so easily dismissed by decision makers. (See our IEP update page.) -dh
... consider adding an alternative move the governor could take that would achieve the goal of lowering energy prices in Fairbanks without costing the State a dime....
Instead of spending cash that's in short supply, make some Prudhoe Royalty gas that is abundantly available for free if someone will move it south to Fairbanks.
The Governor and legislature can do this without costing the State anything. This is how several Middle East LNG plants got started; the states made the gas available for cheap. It draws developers.
AIDEA has already spent the money to build the gravel pad for the LNG plant on the Slope. Let them contribute this to the effort. There are a couple of other improvements they could add to make it more attractive.
|Latchem raises a valid point; more demand and less supply results in higher prices. Note that South Central Alaska consumers have likely paid hundreds of millions more than necessary for Cook Inlet natural gas as the result of a short sighted and tragic 2006 decision by the Regulatory Commission of Alaska that rejected Henry Hub pricing as a basis for CI gas supply agreements. Alaska decision makers should put more emphasis on the counsel of experienced Alaskan energy players like Latchem. (Link to earlier Latchem correspondence re: IEP. -dh|
Another issue that needs discussion is Cook Inlet gas. It is trading at multiples of HH pricing. This actually costs South Central $MMs. Adding additional Interior energy loads to this market will only reinforce the gas pricing relative to competing oil, rather than gas on gas like HH. If the State encourages CI gas to go to the interior, they are in effect costing Anchorage a lot of money. When this becomes public in Anchorage, the notion of tapping Prudhoe gas for free to Fairbanks will be quite popular. Whisper this into the Governor's ear. Anybody doing anything with PB gas should be given a metal.
I didn't agree with SB23, but now that it passed and more than $15MM has been spent, they need to seek competitive bids to finish the supply chain. AIDEA should not own or operate the plant; leave that to those efficient private operators. They can provide low cost financing, the pad site, etc. things that will reduce the bid prices they receive.
The reason AIDEA should provide the financing is that none of the users in Fairbanks are willing to sign a take or pay agreement that ordinary lenders require to address the market risk associated with developing the LNG plant.
AIDEA's pad site could also host other gas development projects. Methanol production is only one. PB gas field is one of the few of its size that doesn't have a petrochemical complex.
It's time to unlock PB gas for something other than local consumption. Things happen very slowly with PB gas. It was first produced for field consumption about 1975. It took another 14 years before it was made available to Deadhorse next door. For 14 years Deadhorse ran on oil while atop 27 TCF of gas.
We put forth a plan that would have gotten PB gas to Fairbanks this year, but AIDEA selected a much larger but less experienced developer in what had to have been one of the most convoluted processes ever. The experiment failed. Now they should pick up the pieces and what's left of the money, get rid of the inexperienced consultants, ask experienced developers what type of structure would produce the most competitive price and move forward.
The solution is simple. Start with the cheapest wellhead gas price: free for so many years. This saves the Interior money and will limit the draw on the already over priced CI gas. So South Central benefits, too.
Next, use AIDEA's pad site they bought from us to be a host site for any small scale gas developments, starting with an LNG plant to supply the Interior.
I'm pretty sure the truckers don't want any help from the State, they will stand up for the opportunity to haul an extra 10 or more loads per day without any incentives. The State is providing them the road to run on, like it would provide the pad to the LNG developer.
FNG already is set up to receive LNG, but IGU and GVEA will need a receiving and storage site. GVEA purchased land in North Pole for this.
I could go on, but what's the point. Alaska still has a lot of money and the course is set to spend it. But I wonder, if (an economist) did a study that showed adding more captive demand to the CI gas supply resulted in every person in South Central paying $100 more than they would if there were fewer buyers in that market instead of more, that each of those people wouldn't prefer to tap PB gas instead.
Then (the economist) could study what happens when you actually do tap the gas like we did in 1989 when first gas was delivered to Deadhorse. Deadhorse has saved $MMs, cleaned up the air, etc. It was a completely private development.
Posted: 18 Feb 2015 06:24 PM PST
Commonwealth North hosted its 9th annual Alaska Assets Review on February 18. The program recognizes that as shareholders of “Alaska Inc.” the citizens of Alaska need to be informed about how the assets of their company are performing. This year Northrim Bank President and CEO Joe Beedle and former Lt. Governor Mead Treadwell presented the performance review.
A bit of a history lesson on the reason Alaska has the wealth of assets that it does. During the statehood debate, it was recognized that the state’s population would likely never have the critical mass to finance government through conventional means employed by other states, primarily per capita taxation. In recognition of the need for Alaska to have means to produce its own revenue, the state was granted 104 million acres of land and mineral rights to significant acreage on federal lands. From this, it was felt that Alaska could build and sustain an economy and pay for necessary government services. The annual program tracks the performance of Alaska’s assets, including natural resources, financial assets and enterprises.
The full report and presentation can be found at www.commonwealthnorth.org. A few highlights of the discussion are below.
Alaska's natural resources are abundant and a large part of Alaska's economy.
Financial assets are an important topic of discussion because of the budget issues being seen in Alaska.
The state’s enterprises are facing challenges, but are working to stay strong.
To wrap up, Alaska is challenged, but it is also well funded and well endowed. Many people are working on ways to find solutions to the state’s fiscal problems. Commonwealth North has produced a report for Alaska’s leadership. This report highlights some opportunities to work through the fiscal problems and ways to fix the budget gap. This report, Alaska’s Operating Budget: Critical Crossroads, Choices and Opportunities will be presented in Anchorage on February 25 at a lunch hosted by Commonwealth North.
Alberta premier talks oil, trade and pipeline at U.S. Chamber of Commerce event in Washington
By Meagan Fitzpatrick, CBC News Posted: Feb 04, 2015 5:08 PM ET Last Updated: Feb 04, 2015 5:26 PM ET
America is now the world’s #1 natural gas producer and will soon be #1 in oil. Now more than ever, abundant energy means abundant prosperity, opportunity and security for all Americans. Learn more at EnergyTomorrow.org.
What CEO and Chairman Jim Clifton (NGP Photo) revealed in his blog Tuesday about how the Labor Department arrives at the monthly unemployment rate is no secret -- including that Americans who have quit looking for work after four weeks are not included in the survey. See video.
ADN: Peter Gruenstein Supports Senator Lisa Murkowski's Fight To Repeal Oil Export Ban
President Barack Obama's recent changes to offshore drilling policies are a "shell game" preventing oil companies from accessing billions of barrels of oil, according to The Washington Times editorial board. Red tape and tight restrictions on leasing federal lands for drilling have actually led to a 6% decline in domestic output in the last five years, the board notes, citing the American Petroleum Institute. Obama's move "puts the country's energy prospects in the hands of other and often unfriendly nations, unnecessarily increasing energy costs and preventing creation of American jobs," the board writes. The Washington Times (2/4)
Michael Tadeo of the U.S. Senate Energy and Natural Resources Committee sends us this helpful note:
Just wanted to send this over from the Senate Joint Economic Committee. It’s a great primer on the importance of developing energy in the Arctic National Wildlife Refuge (ANWR).
This information is especially timely in response to President Obama’s announcement last month that he is unilaterally blocking Alaskans and the nation as a whole from realizing the benefits that would come from increased energy production in ANWR.
It’s important to note that this primer puts the size of ANWR into perspective – especially the part of ANWR that would be used for energy development. ANWR is about the size of South Carolina and of the 1002 area of ANWR, where energy production would occur, only a small fraction, comparable to the size of Dulles Airport in Washington, D.C., would be used for energy production. (SEE .PDF HERE)
February 3, 2015: From the Senate Energy And Natural Resources Committee
President Obama recently announced his intention to lock up millions of acres of land and vast energy resources in Alaska’s Arctic National Wildlife Refuge (ANWR) by designating the area as wilderness. While the Wilderness Act requires the President to obtain congressional approval for wilderness designation, the Department of the Interior is expected to begin managing ANWR as wilderness pursuant to its upcoming conservation plan. As a result, millions of acres of land and billions of barrels of recoverable oil will become off limits to legitimate development against the will of an overwhelming majority of Alaskans. Here are a few facts to consider:
1. The federal government owns 60 percent of Alaska. Alaska contains 365 million acres of land. The federal government owns 222 million of those acres, or an area larger than the combined size of California, Oregon, and Washington State. The National Park Service and the U.S. Fish & Wildlife Service manage about half of the federal land for resource protection and wildlife conservation.
2. ANWR spans an area larger than many U.S. states. ANWR spans 19.2 million acres of land. That’s an area eight times larger than Yellowstone National Park or about the size of South Carolina.
3. Congress limited energy exploration to a small portion of ANWR. In 1980, Congress set aside 1.5 million acres of land on the north slope of ANWR for further study related to energy development. That small segment became known as the “1002 Area.” It comprises only about 7 percent of ANWR.
4. Developing oil in ANWR would impose only a small footprint. Under leading proposals for developing energy in ANWR, production and support facilities would require a footprint of only 2,000 acres within the 1002 Area.That amounts to .01 percent of ANWR’s land area.
5. ANWR contains a vast amount of oil resources. ANWR is believed to contain about 10.4 billion barrels of technically recoverable oil within the 1.5 million acres of the 1002 Area. The Energy Information Administration (EIA) estimates that ANWR would produce around 1 million barrels of oil per day.
6. ANWR development is profitable even at today’s reduced prices. The EIA estimates that more than 80 percent of technically recoverable oil is commercially developable at an oil price under $40 per barrel. That would value the oil resources in ANWR between $180 billion and $500 billion.
7. Opening ANWR would create tens of billions of dollars in new revenues. Tax and royalty revenues from leasing in ANWR would likely total between $90 and $190 billion over a 30-year production period.
8. Alaskans strongly support ANWR oil exploration. Tracking polls conducted over many years have demonstrated upwards of 78 percent support among Alaskans.
|CEA President David Holt (NGP Photo) was the guest on several radio interviews discussing the Arctic for All campaign, America's energy revolution, Alaska's role in domestic energy production and the importance of offshore energy resources.
Anchorage's KBYR featured Holt on the Mornings with Michael Dukes Show. He was also a guest on the nationally syndicated Radio America: Neal Asbury’s Made in America Show. Hear the interviews here!
|The Hill Op-ed by Mead Treadwell (NGP Photo). ...the Obama administration is in a tizzy to solidify its Arctic strategy. January in particular has been quite busy for the administration: an executive order to better coordinate U.S. Arctic policy, a proposed drilling ban in the Arctic National Wildlife Refuge (ANWR) and now a proposed leasing plan that excludes significant areas of the Arctic Ocean for development. These actions all have two things in common. Treadwell FB Page.|
"Alaska's Challenge of Cash & Energy Shortage: Part II"
Yesterday, we reviewed Alaska's fall from fiscal grace: how Washington created a great state in 1959 from territorial status, based on the state's ability to achieve independence and economic parity with other states through development of natural resources.
Then we briefly reviewed how that promise soured, for two reasons: 1) a more and more hostile federal government, with cadres of grassroots environmental activist armies, have steadily removed land access and blocked projects using a variety of statutory, regulatory and judicial techniques; and 2) citizens and their elected officials allowed the productive 1968 Pudhoe Bay discovery to seduce them into overspending and creating an unsustainable, hungry bureaucracy whose appetite is sapping away state savings and threatens to devour the entire economy within a few years.
Yesterday's was a review of Alaska's challenge of cash shortage. That summary serves as a basis for understanding the challenge of energy shortage faced by the Interior Alaska community of Fairbanks today.
Most business, political and community leaders there are engaged in a controversy which today consumes the political dialogue in that city. This may be due to the oft-cited fact that in a city mostly dependent on heating oil derived from $100/barrel crude oil, an average heating bill exceeds the amount of the average mortgage payment.
As our business leader contributor, Buss Otis (NGP Photo) pointed out yesterday many folks find themselves on the edge of economic survival and the sudden, world oil price drop over the last several months is not very fully represented in local fuel bills.
Accordingly, citizens in that northern, Alaska city seek relief.
* * *
Fifty years ago, ENSTAR natural gas company began developing a distribution system designed to serve a brand new market with newly discovered Cook Inlet area natural gas supplies.
Before the arrival of natural gas home heating and cooking, Alaskan Natives and pioneers relied upon fuel sources ranging from firewood to coal to coal- and then gas-generated electricity.
ENSTAR's system evolved over the years as residential, business and commercial customers paid for the cost of the system in the rates they paid.
In 1902 Fairbanks, in the much colder climate of the state's interior, experienced a gold and population rush, soon accompanied by coal mining operations. Coal mining evolved in the South Central and Fairbanks areas, culminating in opening of the Usibelli Coal Mining in the 1940s, providing a heating and power source to Fairbanks and to the nearby Ladd Army Air Field (now Fort Wainwright).
Also in the mid-1940's local residents created an electric cooperative; Golden Valley Electric Association (GVEA) now operates and maintains over 3,000 miles of transmission and distribution lines for its customers. It has generated its electricity from coal, naptha, natural gas, hydro and wind and maintains an intertie capability of receiving peak supplies from the Anchorage area Electric Cooperative, Chugach Electric Association.
* * *
Last year Fairbanks' Flint Hills refinery closed. The refinery took crude oil from the Trans Alaska Pipeline System (TAPS), refined it into various fuels -- including products used for power generation, motor fuel and home heating. While a smaller Flint Hills refined fuel terminal remains, it distributes imported products refined by others. Local residents remain concerned that the local refinery once offering a degree of independence from 'outside' sources is now gone.
Shortly after Flint Hills ceased refining operations last summer, the price of oil began to fall but Otis noted the complete drop in crude pricing is not fully reflected in imported, refined product pricing in Fairbanks.
As anxiety about high priced, home heating fuel increased, the Interior Alaska political representatives became -- over the last few years -- more pressured to "do something". While the private market in all previous Alaska energy challenges has shown itself to be a superior arbitrator of supply and demand, elected officials seem drawn to the prospect of 'helping with public money' as constituent voice levels rise.
During the 2013 legislative session lawmakers joined then Governor Sean Parnell in approving a government solution. The Alaska Industrial Development and Export Authority (AIDEA) would be tasked with an assignment to facilitating the spending and transfer of hundreds of millions of dollars to create an Alaska North Slope LNG trucking project designed to provide Fairbanks with a new, 'affordable' and stable source of natural gas for home heating.
The advantages would be many, perhaps. Natural gas produces fewer air quality issues than coal or heating oil. Perhaps it could be cheaper, with help from the state coffers.
However, we are not aware that AIDEA has the in-depth technical and managerial expertise qualifying it to design, finance, build, own, operate, and/or market an LNG and gas distribution operation--or even properly supervise those who do. Oh, and, by the way, for the project to work a new natural gas distribution system would have to be installed throughout the 30k population "Golden Heart City" since the existing utility only serves about a thousand customers.
In short, this was to be a very complex piece of work involving many moving parts, many disciplines and the creation of a whole new distribution system.
When Governor Bill Walker took over his new office in December, it soon became obvious that the AIDEA sponsored, North Slope LNG trucking project would cost vastly more than projected.
With that development other parties began expressing interest in continuing the Fairbanks project with gas either originating from the North Slope, as previously planned, or from the gas producing fields of Cook Inlet.
Last week Governor Walker surprised many when we reported on a AIDEA news release disclosing that it would be undertaking a new, Cook Inlet-based LNG project that would likely displace interested private parties, including Ray Latchem, a highly experienced and successful Alaskan entrepreneur and Hilcorp a leading Cook Inlet oil and gas producer and an important, new Alaska North Slope operator with ability to assume risk and acquire all the LNG/gas distribution expertise that might be required for such a project.
No sooner had one AIDEA-sponsored Fairbanks LNG Trucking Project expired than a new administration ordered it to, Phoenix-like, raise a new government project from the ashes of the old rather than reaching out for an expression of private interest and investment.
By pure happenstance yesterday, we received an extremely detailed email from Latchem, a man who is, arguably, the most experienced small LNG plant developer in the State's history and perhaps one of the best in the world. We think our readers will find both his email to us and his letter addressed to Governor Bill Walker to be highly informative, filled with history and facts.
We would like to have a similar document from Hilcorp. Having been a regulator and worked for producing oil and gas companies I can understand should its management have any reluctance to defend whatever plans it may have had -- or still might have -- in a way that might be perceived as offensive to the State of Alaska, the Lessor, the Regulater.
Tomorrow, we'll close with a brief, Part III.
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Please remember that we provide our news links, maps, presentations, documents and commentary for the archives--so that those who follow us will have access to decades of data on Northern North American gas pipelines and the energy related policies affecting them. We are especially concerned with accuracy in our own commentary, for while we follow these issues closely, we depend upon the eyes and brains of dozens of experts who regularly correspond with us.
Whenever a correction or addition to one of our commentaries is merited, we make the change so that the archives have the best possible information. Of course, we do not normally change our editorial position, but will even do that if a factual error is the basis for an editorial opinion. Accordingly, your input is invited all the time. Thank you for your readership! -dh