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      This is your public service 1-stop-shop for Alaskan and Canadian Arctic energy commentary, news, history, projects and people. We update it daily for you. It is the most timely and complete northern energy archive anywhere — used by media, academia, government and industry officials throughout the world. Northern Gas Pipelines may be the oldest Alaska blog; we invite readers to name others existing before 2001.  -dh

 

Reader Comment

1-27-16

27 January 2016 8:36am

Reasons for oil states and provinces to be as competitive as possible.  (Statistics today from our Aussie O&G energy analyst friend)

  • Late last week US independent Southwestern Energy laid off 1,100 staff members - or an incredible 40% of its staff

  • A similar story is being played out with Canadian focused Husky Energy, who is said to be planning a 30% staff reduction in the next few weeks.

  • Oil services giant Schlumberger announced a 15,000 personnel reduction last week.  

  • Also as we noted last week, Shell is to reduce its staff (post the BG acquisition) by 10,000.

  • Anecdotally, the total work-force reduction in the Canadian province of Alberta is said to be touching 100,000.

  • And very anecdotally - my Aberdeen based and/or trained Facebook friends are much more nervous about job cuts in 2016 than they were in 2015.

  • As we have stated before, we think the World is effectively placing an awful lot of faith in the increasingly fewer remaining members of the oil and gas industry to deliver new supply once the tiny (in our view) current spare capacity is eroded by demand gains and depletion.

​​Conclusion:

1) The last thing lawmakers should do in a low price environment is raise taxes and regulatory costs of exploration, production, transportation and refining activities; and, 2) when price recovery occurs, activity will logically begin to grow first in low cost/high return areas.  -dh​

Categories:

1-24-16 Pacific Legal Foundation Update

24 January 2016 7:40am

Pacific Legal Foundation Communication, Current Cases:

Thanks Dave. I enjoy reading your NGP alerts and all of us here think about the major issues there.  Thanks for providing a great service!

You may have seen that we have two cases accepted at the Supreme Court, including a Clean Water Act challenge.  I know several years ago we had a case in Fairbanks (permafrost = wetlands) against the Corps of Engineers.  In Corps of Engineers v. Hawkes, we represent a Minnesota peat mining business that has been raked over the coals by the Corps.  The feds issued a jurisdictional determination that they control the property. The legal issue in play for justices --- whether a property owner can directly challenge government in court when regulators label property as wetlands, subject to federal oversight.

Here’s our news release….

http://www.pacificlegal.org/releases/release-12-11-15-hawkes-1-1442

Regards,

Bob

 

Robert L. Krauter

Chief Communications Officer

Pacific Legal Foundation

930 G Street

Sacramento, CA 95814

(916) 503-9032

Categories:

9-22-15 BP's US and Alaska Economic Reports

22 September 2015 2:52am

See BP's 2015 $135 billion US Economic Impact and Its Alaska Economic Report (Supporting over 24k jobs)


Our Commentary


Calgary Herald.  

 
 

ADN by Pat Forgy.  

The North Slope Borough has become fabulously wealthy from taxes on the oil industry and its massive Prudhoe Bay infrastructure.   More....

Reader Commentary

by

Our Mid-Atlantic Energy Senior Consultant Friend

(Reference this Fuel Fix Story by Collin Eaton)

Our Commentary

While Alaska producers are poised to finance and build a gas pipeline/LNG export project, Alaska's new Administration seems to be doing everything possible to delay it into oblivion.  

  • Alaska Governor Bill Walker, Photo by Dave HarbourGovernor Bill Walker (NGP Photo) made a trip to Japan last week, signaling to us that he doesn't trust the gas owners to negotiate their own LNG deals in the Land of the Rising Sun. (Note: 1) See Larry Persily review; and 2) Lease holders market the gas they discover.  Alaska receives a royalty gas share, but takes it in value or in kind as the producers initiate their production).
  • He has not told the producers whether he'll take the royalty gas in-kind or in value, which is likely causing certain planning delays.
  • He has said he is for gas project fiscal certainty, but will not extend that certainty to the producers' oil production or their property, leaving an opening for more predatory oil taxation after the gas investment becomes irretrievable.
  • For the gas pipeline, he has not yet coordinated a workable Payment In Lieu Of (property) Taxes concept among the oil companies, Alaska's municipalities and the legislature.  Municipalities like the North Slope Borough, Fairbanks and Valdez are able to take up to the state's limit of 20 mils annually of the value of oil property within their borders and the companies deduct that amount from what they 'owe' the state.  Obviously, the hapless municipalities without oil property do not directly benefit from taxation of oil property under current law.  Note: the statewide oil and gas property tax is another of Alaska's greedy takings as it applies to only one industry; it is highly discriminatory.  If there is a statewide property tax, why should it not fairly apply to ALL property owners?
  • He has demanded that the producers provide an alternate plan for a 48 inch, high pressure, buried gas pipeline when the 42 inch model has already been studied to death.  This is causing a delay.
  • He has indicated he will not convene a special session this Fall to provide various, necessary legislative approvals, which cannot help but delay the project.  However, we hear today he may be preparing to issue a proclamation as early as tomorrow, calling for a special session.
  • These delays could cause more delay in any effort next session for the legislature to pass by a 2/3 vote a constitutional amendment regarding fiscal security for producer investors.  By not having that legislative vote, ratified by a plebiscite during the November 2016 election, the project would be further delayed.
  • While potential gas pipeline investors cannot commit to the Alaska gas project (and neither would we) without fiscal guarantees of stability, the Governor has been talking of still higher taxes to overcome the state's over dependency on the oil sector as production slows down and prices remain low.

We have commented on these various matters separately over the governor's first year in office; we believe that, this issue cannot be separated from the theme of our consultant friend's article on the left.

As development projects are delayed during this low energy price era, experienced oil industry specialists in many areas -- including gas exploration, production, pipelines, liquefaction and ocean transport -- are being laid off and/or retired.

Our consultant friend has observed that this trend endangers future projects, not because of future oil prices but because of the serious lack of oil and gas specialists needed when demand and higher prices again call for more production -- from highly technical projects.

It is another viewpoint that public and private officials involved in pipeline/LNG projects should bear in mind. 

If politicians waste too much time trying too hard to dictate what projects investors should build, how, in what timeframe and with what personnel policies (i.e. as Alaskan politicians tend to do), Alaska's gas pipeline could remain a pipe dream for another, perhaps poorer but wiser, generation to tackle.  

-dh  (Note: we will immediately correct any factual errors in this or any archived material.  Please write us with any additions or corrections.  Thank you.)

Wood Mackenzie has estimated that the number of  major drilling projects on which the oil industry can make money, given current economics, is down by huge amount (although the numbers are actually a little fuzzy). We have written about this trend several times recently, including our note on diminished North Sea drilling. We do not have access to the complete WM report – their press release is below – but it is still fair make several points about the implications of this trend:

·        It will be tough to get to the cost reductions estimated as necessary below, without fudging the numbers. The oil companies already challenge costs in a very disciplined manner for every project, even after it goes FID.

·        Given current cash flows, it is probable that a number of projects declared marginally profitable after being put through the cost reduction wringer will get deferred for significant time, or simply mothballed.

·        This process will have a cascade effect if it goes on for several years. The longer it goes on, the more the reason for deferral will be lack of qualified  

specialistsProstitution is not world’s oldest profession; the oil industry is. The business lost the bulk of a whole generation through layoffs in 1980s and 1990s. With the layoffs this time around, the talent needed for the next upturn simply will not be there.

·        Many of these projects will take multiple years to be developed. The lack of timely response to deal with a supply/demand imbalance will also contribute to greater volatility in the future.

Bottom Line: We have seen this movie before. The monsters involved will be bigger and more convoluted in the current version of the story, but the result will be the same. It will not end well.


Today's Energy Links Are From Larry Persily, Former Federal Gas Pipeline Coordinator

Oil and gas news briefs for Sept. 21, 2015

LNG buyers making progress in push for more flexible contracts

(Platts; Sept. 18) - Calls for increased contract flexibility dominated discussions at the fourth annual LNG Producer-Consumer Conference in Tokyo this week, as industry participants met once again to deliberate emerging trends in the LNG market. The debate advanced some from a year ago, when price indexation had largely taken center stage. With some flexibility now granted in this area, the focus increasingly turned to the still-restrictive terms around LNG delivery schedules and destinations.

Numerous industry observers saw the removal of destination clauses, take-or-pay terms and wider quantity tolerance in contracts as key components that will be necessary to manage the looming supply glut in LNG. "LNG producers must improve on the contract practices of the past. Simply put, producers need to help increase the flexibility of the trade," said Jae-do Moon, South Korea's vice minister for trade, industry and energy.

Jean-Pierre Mateille, Total Gas & Power's vice president for trading, conceded that changes around delivery and schedule terms in contracts were inevitable. "Contracts are becoming shorter.” Most U.S. LNG exports will allow destination flexibility, Mateille said, “We see the traditional link between producer of gas and buyer has been broken up by this new business model.” Satoshi Kusakabe, commissioner of Japan METI's Natural Resources and Energy Agency, said removal of destination clauses would help the market because it would draw more players and increase liquidity and spot trades.

Meanwhile, market uncertainty and lack of new project sanctions has prompted caution of future shortages. "Even at current projections, we need to add about 20 million metric tons of LNG per year to maintain a stable supply demand balance [from 2023 onward]," said Demus King, general manager for offshore resources at Australia's Department of Industry and Science. "To deliver in 2023, FIDs need to be made in the next few years."

Global commodity traders see big opportunities in LNG

(Reuters; Sept. 17) - Mining and trading giant Glencore is mounting a challenge to Trafigura and Vitol to become the top merchant trader of liquefied natural gas as a global market in which sales are largely frozen in decades-long contracts looks ready to thaw. Trafigura recently adopted tactics developed from years of trading oil to become the world's top LNG merchant, investing in logistics and storage, while also providing credit and shouldering risk for buyers.

Glencore, on the other hand, plans to double its global LNG trading team and trade as many as 50 cargoes of the fuel over the next year — almost twice what Trafigura traded in its past fiscal year. LNG could soon surpass iron ore as the world's second-biggest traded commodity, with estimates of the market's worth ranging between $90 billion and $150 billion. "The opportunity for growth in LNG trading is spectacular," said Glencore's global head of LNG, Gordon Waters, who joined the firm in July after 18 years at BP.

Trading companies, which industry sources say have so far accounted for less than 10 percent of overall LNG trade, could help trigger a more liquid Asian LNG market, with exchanges from Singapore to Tokyo launching indices and futures contracts in preparation. Glencore — which has had a limited presence in LNG up to this point — plans to trade in spot or short-term deals over the next year and double the size of its three-trader team based in Singapore, London and Madrid.

 

First Nation seeks title to island at proposed LNG plant site

 

(Globe and Mail; Canada; Sept. 18) - The Lax Kw’alaams First Nation is seeking aboriginal title to Lelu Island and Flora Bank, creating a legal obstacle for a Malaysian-led consortium that wants to build a liquefied natural gas export terminal near Prince Rupert, B.C. The aboriginal group will file a notice of civil claim to launch the legal action next week in B.C. Supreme Court, Lax Kw’alaams Mayor Garry Reece said Sept. 18.

 

Pacific NorthWest LNG, led by Malaysia’s Petronas, is proposing to construct an LNG export terminal on Lelu Island, and also build a suspension bridge and jetty to a dock for Asia-bound tankers. Pacific NorthWest LNG has offered assurances that the design of marine infrastructure will not harm the environment. But the Lax Kw’alaams believe there would be environmental damage because Flora Bank contains juvenile salmon habitat in eelgrass beds next to the island in the Skeena River estuary.

 

“We want to protect crucial salmon habitat, protect our food security and ensure that governments and industry are obligated to seek our consent,” Reece said. The area is part of the traditional territory of the Allied Tsimshian Tribes of Lax Kw’alaams, and Reece believes that gaining aboriginal title will provide the First Nation with an effective veto over specific aspects of Pacific NorthWest LNG’s proposal. The B.C. government said it respects the right of the Lax Kw’alaams to seek title, while the Prince Rupert Port authority said it is examining the implications of the legal challenge.

 

Petronas will market ‘package deals’ to sell some of its B.C. LNG

 

(Platts; Sept. 15) - Pacific NorthWest LNG will look to sell additional volumes of gas from its planned Prince Rupert, B.C., facility to Asian buyers as part of "package deals,” responding to buyer demand, company president Michael Culbert said Sept. 16. “The Chinese, Japanese and Indian markets are seeking diversity [in supply sources] and Petronas is looking at a portfolio of supplying LNG for 20 to 30 years that will be sourced from Canada besides Australia and other global producers," he said.

 

"A prime advantage of mixing LNG supplies from Canada with other producers will be stability of supply that buyers are demanding," he said on a webcast of the Peters and Co. annual conference in Toronto. Petronas holds 62 percent of the B.C. project that is aiming to start exports in late 2019 or early 2020. Petronas is responsible for marketing the LNG, Culbert said, and already has sold nearly 50 percent of the output under long-term deals with Sinopec, Indian Oil Corp., Japex and Petroleum Brunei.

 

Culbert did not indicate how much LNG that Petronas plans to sell under the package deals, or if negotiations have already started with Asian buyers. Pacific NorthWest LNG is awaiting final clearance from the Canadian Environmental Assessment Agency before taking a final investment decision to build its LNG facility.

 

Asian owned-and-operated LNG plant new to the market

 

(Nikkei Asian Review; Sept. 16) - Companies in East Asia are teaming up to secure cheap, stable supplies of liquefied natural gas. In the process, they are attempting an end-around of the oil giants that dominate the LNG business. One example of how they are trying to do this can be found in Indonesia, where Japanese trading company Mitsubishi and Korea Gas, the world's largest LNG importer, built an LNG plant.

 

The hope is to eventually ease Big Oil's grip on Asia's LNG market. In August, the first shipment of LNG made its way from the new Donggi Senoro plant to an LNG receiving terminal operated by Pertamina, Indonesia's state-owned oil and gas company. This fall, LNG from the Donggi Senoro plant will be shipped to Korea Gas and Japanese electric utilities, said Toru Kawabata, operations director for the joint venture.

 

The new plant in Indonesia — at 2 million metric tons annual capacity — is much smaller than the Middle East's typically gigantic production facilities, though it has huge implications for East Asia's LNG market. It is a wholly Asian enterprise in an industry used to Western oil companies taking the lead in building and operating LNG plants — and its output will stay in Asia. Neither Mitsubishi nor Korea Gas has any experience operating an LNG plant, however, and the team has gotten off to a shaky start. After production began, operating errors have caused emergency shutdowns.

 

 

Major LNG carrier operator says Australia gas could go to Europe

 

(Sydney Morning Herald; Sept. 17) - If Asia doesn't want Australia's liquefied natural gas, Europe will take it, said the CEO of one of the world’s largest independent owner and operator of LNG carriers. Australian LNG producers are seeing growth demand in top-consuming East Asia countries, like China, Korea and Japan, dry up as those economies slow down. That's causing some Australian developers whose projects are due to come online to look elsewhere, said Gary Smith, who heads up Golar LNG.

 

"The only other liquid market that is open to them with the U.S. now closed is Europe," Smith said Sept. 16 at the annual Capital Link Global Commodities Energy & Shipping Forum in New York. "And we've seen it before where cargoes start moving west from Australia instead of east." East Asia nations are not taking a lot of additional supply commitments, with some buyers reselling their cargoes, Smith said. Unless markets in Asia change, Australian LNG is “going to have to go farther to find a home,” he said.

 

European demand for LNG is constant, since the fuel can be used to replace pipeline gas or used by generators to produce electricity, he said.

 

 

U.S. report shows coal losing favor in China

 

(U.S. Energy Information Administration; Sept. 17) - Economic deceleration, industry restructuring and new energy and environmental policies have slowed China’s growth in coal consumption and are also driving more centralized and cleaner uses of coal. After nearly a decade of rapid growth, coal consumption — which currently supplies two-thirds of China's overall energy use — grew only 1 to 2 percent in 2012 and 2013 and was essentially flat in 2014, according to the U.S. Energy Information Administration.

 

Total energy consumption in China has slowed as its economic growth has eased and as the composition of its gross domestic product has shifted. In 2013, the service-sector share of GDP surpassed the industry-sector share for the first time in Chinese history. The service-sector share further increased to 48 percent in 2014. Policies to accelerate the development of service industries are likely to sustain the transition away from industry, further weakening coal consumption, the EIA said in its report.

 

Industry restructuring has reduced China’s energy demand growth from coal-intensive industries such as steel, cement and fertilizer as industry growth slows and processes become more energy efficient. In addition, China's severe air pollution challenges have led to new policies and regulations to restrict coal use in coastal China, to upgrade the nation's coal-fired power generation fleet, and to accelerate the increase of alternative energy technologies.

 

 

Idled oil rigs mean less gas production in U.S.

 

(Bloomberg; Sept. 16) - The retrenchment in drilling for oil in the U.S. is threatening to leave a different market short: natural gas. “The impacts of oil-rig counts extend beyond oil; the outlook for U.S. natural gas is critically dependent on the outcome of this balancing act in U.S. oil rigs,” Anthony Yuen, a strategist at Citigroup in New York, said in a report to clients Sept. 16. “If the oil market remains oversupplied and oil-rig counts fall, the decline in associated gas production would leave the market short of gas.”

 

Associated gas is the gas that comes out of oil wells along with the crude. Supplies of this byproduct from fields including the Bakken formation in North Dakota and the Eagle Ford in Texas may fall by about 1 billion cubic feet a day next year as drillers idle rigs in response to the collapse in oil prices, Yuen said. The U.S. Energy Information Administration has already forecast that shale gas production will drop in October for the fourth straight month, a record streak of declines.

 

Crude producers in the Lower 48 states may have to keep the number of working rigs low for a while longer to balance the global oil market, Yuen said. A premature recovery in the rig count may “exacerbate the current oversupplied environment” and weaken prices, he said. While oil prices have been down, natural gas futures have been lower, too, settling at $2.66 per million Btu on the New York Mercantile Exchange Sept. 16, down 41 percent from June 20, 2014.

 

 

Floating LNG storage, regasification ships gain in popularity

 

(Bloomberg; Sept. 15) - At a time when oil and gas producers are writing down assets and canceling projects worldwide, one niche area is booming. Hybrid ships, called floating storage and regasification units, or FSRUs, offer emerging nations from Egypt to Pakistan a cheaper, quicker way to attack power shortages by importing liquefied natural gas. They cost about $300 million to build, half as much as an onshore import terminal, and are up and running as much as six times faster, sometimes within as little as a year, according to FSRU owners Hoegh LNG Holding and Excelerate Energy.

 

Built at shipyards in South Korea, Hoegh sees as many as 55 such vessels in use within five years, from about 20 now and just one a decade ago. “The main driver is speed,” Sveinung Stohle, Hoegh’s chief executive officer, said by telephone from the company’s Oslo office. “Demand for FSRUs follows a drastic reduction in the cost of LNG. We see that this has caused a very strong increase in requests.”

 

FSRUs are emerging as the fastest alternative for gas imports as nations imposing limits on carbon dioxide emissions turn to cleaner-burning gas. Competition has cut costs of leasing such vessels by 20 percent to about $120,000 per day from five years ago, said Keith Bainbridge, managing director of industry consultant CS LNG in London. Once the 1,000-foot ships are moored, LNG is transferred from arriving tankers through pipes. The LNG is regasified onboard and typically used at a nearby power plant.

Australia antitrust regulator delays decision on Shell-BG deal

(Wall Street Journal; Sept. 17) – Shell’s $70 billion takeover of BG Group has hit a snag after Australia’s antitrust regulator flagged concerns the deal might squeeze domestic supplies of natural gas and drive up prices. The Australian Competition and Consumer Commission said Sept. 17 it would delay a decision on the deal by about two months toNov. 12, after receiving a welter of submissions from businesses worried Shell would curb local supply in favor of more lucrative sales to Asia through BG’s LNG terminal.

Shell’s proposed acquisition of BG is, in part, a bet that developing countries will move to cleaner-burning gas amid growing pressure to curb emissions. The regulator’s review of the Shell-BG tie-up has become entwined in a separate study of Australia’s East Coast gas market, which Commission Chairman Rod Sims said is one of the few in the world under the shadow of supply uncertainty despite a global gas production boom.

Australia is due to become the world’s biggest producer of liquefied natural gas within two years, as several multibillion-dollar export terminals that began construction when oil and gas prices ran hot start shipping cargoes of LNG to Asia. While that investment holds out the prospect of sharply higher revenues for state and federal governments in Australia, it has also spooked local businesses, which fear paying more for energy as fuel that would have previously fed the domestic market gets shipped overseas.

Gas association launches pro-pipeline public awareness campaign

(Houston Chronicle; Sept. 14) – Increased domestic production has spurred a need for new pipelines to carry natural gas across the country, but also a wariness by some Americans worried about pipelines snaking through the ground. The Interstate Natural Gas Association of America hopes to combat some of the skepticism by rolling out a new ready-for-social-media campaign with videos, graphics and a website emphasizing that pipelines are a vital energy link for the nation.

“If you think about citizens who live near pipelines or in communities where pipelines are proposed to be constructed, they probably don’t know much about natural gas or natural gas pipelines and the tremendous contributions (they) make to overall quality of life,” said Don Santa, CEO of the gas association. With the campaign, INGAA argues that pipelines are the safest method for transporting gas. In addition, gas is better for the environment than the coal it often displaces for power generation.

Cathy Landry, an INGAA spokeswoman, said the group is trying to reach “everyday Americans,” including landowners and others in communities affected by pipeline construction — people who may not realize that natural gas is used to generate electricity as well as fuel furnaces. The campaign is being launched as opponents to oil and gas development have focused more attention on pipelines.

Analyst forecasts another record year for U.S. gas production

(Platts; Sept. 18) - Record levels for production, power burn and storage injection will help make 2015 another record year for natural gas, Jeff Moore, senior energy analyst at Platts unit Bentek Energy, told attendees Sept. 18 at the 38th annual Coal Marketing Days conference in Pittsburgh. Moore said that while coal plant retirements have helped fuel an increase in natural gas generation, the real driver behind in the rise in demand is the commodity's continued low price.

With the Henry Hub price staying below $3 per million Btu, natural gas generation is deployed ahead of coal, Moore said. The only time gas demand for power generation was near these levels was in 2012, the year the Henry Hub price dipped to about $2 in May, he said. Bentek sees the price rounding out in 2015 at an average of $2.68 and increasing to $2.84 in 2016. From 2017 to 2020, Bentek expects the price to average $3.38, $3.85, $4.23 and $4.42, respectively.

Efficiencies in horizontal drilling and a drastic increase in the initial production rate from wells in the Marcellus and Utica shales will push gas production to a new high in 2015, Moore said. Total U.S. marketed gas production is averaging 72 billion to 72.5 billion cubic feet per day this year but will ramp up to near 74 bcf by the end of 2015, Moore said. Gas inventory levels are predicted at an all-time high at the end of the year, but the volumes depend on winter weather.

U.S. oil production finally starts trending lower

(EnergyWire; Sept. 17) – U.S. crude oil production is finally starting to decline, according to statistics and experts. After months of production increases — even in the midst of falling oil prices — total output volumes have been trending downward as production growth in some areas is being outpaced by declines in major shale oil regions. The trend appears to be holding.

Earlier, it had been difficult to tell whether output declines represented a steady trend or the occasional variance seen month to month. Output continues to expand in the Permian Basin of west Texas and southeastern New Mexico and in federal waters in the Gulf of Mexico. But declines in the North Dakota Bakken Shale, in south Texas' Eagle Ford Shale and from other fields appear to be outpacing growth elsewhere.

"There is evidence now that production from the shale plays is declining, not at a rapid rate, but I just recently saw some data for the Eagle Ford and the Bakken which do show production declines over the last couple of weeks," said Bernard Weinstein, director at the Maguire Energy Institute at Southern Methodist University. The U.S. Energy Information Administration sees a gradual decline continuing for the next year, with U.S. oil production forecast to reach 8.63 million barrels a day in August 2016, a drop of nearly 1 million barrels per day from the April 2015 high-water mark.

Low oil prices may cut into production as companies run out of cash

(Bloomberg; Sept. 17) - As much as 400,000 barrels a day of oil production is at risk as U.S. shale companies like Samson Resources run out of money and are forced to slow drilling. Total debt for half of the companies in a Bloomberg index of more than 60 producers has risen to a level that represents 40 percent of their enterprise value. It’s a sign of distress that shows equity values falling in the face of oil’s crash, said Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors.

The companies facing high debt loads, which include Encana and Chesapeake Energy, produced 1.1 million barrels a day in the second quarter of this year, according to data compiled by Bloomberg. If more companies file for bankruptcy as Samson did Sept. 16, or embrace the kinds of draconian cuts needed to survive, output could fall by 200,000 to 400,000 barrels, Thummel said. A loss of that much crude would be the steepest U.S. decline since 1989 — about the same as Oklahoma, the sixth-largest producing state.

“We are going to see a major response because these financially challenged companies won’t be able to produce as much as they did in the past,” he said. As companies run short on cash from low oil prices, they may be forced to idle drilling rigs, file bankruptcy or seek more expensive financing and sell assets. In the past year, U.S. oil producers used 83 percent of their operating cash flow to pay for debt service, according to the U.S. Energy Information Administration. A year earlier, it was less than 60 percent.


 
 
 
Today's Energy Links Are From Larry Persily, Former Federal Gas Pipeline Coordinator
Oil and gas news briefs for Sept. 21, 2015

LNG buyers making progress in push for more flexible contracts
 
(Platts; Sept. 18) - Calls for increased contract flexibility dominated discussions at the fourth annual LNG Producer-Consumer Conference in Tokyo this week, as industry participants met once again to deliberate emerging trends in the LNG market. The debate advanced some from a year ago, when price indexation had largely taken center stage. With some flexibility now granted in this area, the focus increasingly turned to the still-restrictive terms around LNG delivery schedules and destinations.
 
Numerous industry observers saw the removal of destination clauses, take-or-pay terms and wider quantity tolerance in contracts as key components that will be necessary to manage the looming supply glut in LNG. "LNG producers must improve on the contract practices of the past. Simply put, producers need to help increase the flexibility of the trade," said Jae-do Moon, South Korea's vice minister for trade, industry and energy.
 
Jean-Pierre Mateille, Total Gas & Power's vice president for trading, conceded that changes around delivery and schedule terms in contracts were inevitable. "Contracts are becoming shorter.” Most U.S. LNG exports will allow destination flexibility, Mateille said, “We see the traditional link between producer of gas and buyer has been broken up by this new business model.” Satoshi Kusakabe, commissioner of Japan METI's Natural Resources and Energy Agency, said removal of destination clauses would help the market because it would draw more players and increase liquidity and spot trades.
 
Meanwhile, market uncertainty and lack of new project sanctions has prompted caution of future shortages. "Even at current projections, we need to add about 20 million metric tons of LNG per year to maintain a stable supply demand balance [from 2023 onward]," said Demus King, general manager for offshore resources at Australia's Department of Industry and Science. "To deliver in 2023, FIDs need to be made in the next few years."
 
Global commodity traders see big opportunities in LNG
 
(Reuters; Sept. 17) - Mining and trading giant Glencore is mounting a challenge to Trafigura and Vitol to become the top merchant trader of liquefied natural gas as a global market in which sales are largely frozen in decades-long contracts looks ready to thaw. Trafigura recently adopted tactics developed from years of trading oil to become the world's top LNG merchant, investing in logistics and storage, while also providing credit and shouldering risk for buyers.
 
Glencore, on the other hand, plans to double its global LNG trading team and trade as many as 50 cargoes of the fuel over the next year — almost twice what Trafigura traded in its past fiscal year. LNG could soon surpass iron ore as the world's second-biggest traded commodity, with estimates of the market's worth ranging between $90 billion and $150 billion. "The opportunity for growth in LNG trading is spectacular," said Glencore's global head of LNG, Gordon Waters, who joined the firm in July after 18 years at BP.
 
Trading companies, which industry sources say have so far accounted for less than 10 percent of overall LNG trade, could help trigger a more liquid Asian LNG market, with exchanges from Singapore to Tokyo launching indices and futures contracts in preparation. Glencore — which has had a limited presence in LNG up to this point — plans to trade in spot or short-term deals over the next year and double the size of its three-trader team based in Singapore, London and Madrid.
 
First Nation seeks title to island at proposed LNG plant site
 
(Globe and Mail; Canada; Sept. 18) - The Lax Kw’alaams First Nation is seeking aboriginal title to Lelu Island and Flora Bank, creating a legal obstacle for a Malaysian-led consortium that wants to build a liquefied natural gas export terminal near Prince Rupert, B.C. The aboriginal group will file a notice of civil claim to launch the legal action next week in B.C. Supreme Court, Lax Kw’alaams Mayor Garry Reece said Sept. 18.
 
Pacific NorthWest LNG, led by Malaysia’s Petronas, is proposing to construct an LNG export terminal on Lelu Island, and also build a suspension bridge and jetty to a dock for Asia-bound tankers. Pacific NorthWest LNG has offered assurances that the design of marine infrastructure will not harm the environment. But the Lax Kw’alaams believe there would be environmental damage because Flora Bank contains juvenile salmon habitat in eelgrass beds next to the island in the Skeena River estuary.
 
“We want to protect crucial salmon habitat, protect our food security and ensure that governments and industry are obligated to seek our consent,” Reece said. The area is part of the traditional territory of the Allied Tsimshian Tribes of Lax Kw’alaams, and Reece believes that gaining aboriginal title will provide the First Nation with an effective veto over specific aspects of Pacific NorthWest LNG’s proposal. The B.C. government said it respects the right of the Lax Kw’alaams to seek title, while the Prince Rupert Port authority said it is examining the implications of the legal challenge.
 
Petronas will market ‘package deals’ to sell some of its B.C. LNG
 
(Platts; Sept. 15) - Pacific NorthWest LNG will look to sell additional volumes of gas from its planned Prince Rupert, B.C., facility to Asian buyers as part of "package deals,” responding to buyer demand, company president Michael Culbert said Sept. 16. “The Chinese, Japanese and Indian markets are seeking diversity [in supply sources] and Petronas is looking at a portfolio of supplying LNG for 20 to 30 years that will be sourced from Canada besides Australia and other global producers," he said.
 
"A prime advantage of mixing LNG supplies from Canada with other producers will be stability of supply that buyers are demanding," he said on a webcast of the Peters and Co. annual conference in Toronto. Petronas holds 62 percent of the B.C. project that is aiming to start exports in late 2019 or early 2020. Petronas is responsible for marketing the LNG, Culbert said, and already has sold nearly 50 percent of the output under long-term deals with Sinopec, Indian Oil Corp., Japex and Petroleum Brunei.
 
Culbert did not indicate how much LNG that Petronas plans to sell under the package deals, or if negotiations have already started with Asian buyers. Pacific NorthWest LNG is awaiting final clearance from the Canadian Environmental Assessment Agency before taking a final investment decision to build its LNG facility.
 
Asian owned-and-operated LNG plant new to the market
 
(Nikkei Asian Review; Sept. 16) - Companies in East Asia are teaming up to secure cheap, stable supplies of liquefied natural gas. In the process, they are attempting an end-around of the oil giants that dominate the LNG business. One example of how they are trying to do this can be found in Indonesia, where Japanese trading company Mitsubishi and Korea Gas, the world's largest LNG importer, built an LNG plant.
 
The hope is to eventually ease Big Oil's grip on Asia's LNG market. In August, the first shipment of LNG made its way from the new Donggi Senoro plant to an LNG receiving terminal operated by Pertamina, Indonesia's state-owned oil and gas company. This fall, LNG from the Donggi Senoro plant will be shipped to Korea Gas and Japanese electric utilities, said Toru Kawabata, operations director for the joint venture.
 
The new plant in Indonesia — at 2 million metric tons annual capacity — is much smaller than the Middle East's typically gigantic production facilities, though it has huge implications for East Asia's LNG market. It is a wholly Asian enterprise in an industry used to Western oil companies taking the lead in building and operating LNG plants — and its output will stay in Asia. Neither Mitsubishi nor Korea Gas has any experience operating an LNG plant, however, and the team has gotten off to a shaky start. After production began, operating errors have caused emergency shutdowns.
 
 
Major LNG carrier operator says Australia gas could go to Europe
 
(Sydney Morning Herald; Sept. 17) - If Asia doesn't want Australia's liquefied natural gas, Europe will take it, said the CEO of one of the world’s largest independent owner and operator of LNG carriers. Australian LNG producers are seeing growth demand in top-consuming East Asia countries, like China, Korea and Japan, dry up as those economies slow down. That's causing some Australian developers whose projects are due to come online to look elsewhere, said Gary Smith, who heads up Golar LNG.
 
"The only other liquid market that is open to them with the U.S. now closed is Europe," Smith said Sept. 16 at the annual Capital Link Global Commodities Energy & Shipping Forum in New York. "And we've seen it before where cargoes start moving west from Australia instead of east." East Asia nations are not taking a lot of additional supply commitments, with some buyers reselling their cargoes, Smith said. Unless markets in Asia change, Australian LNG is “going to have to go farther to find a home,” he said.
 
European demand for LNG is constant, since the fuel can be used to replace pipeline gas or used by generators to produce electricity, he said.
 
 
U.S. report shows coal losing favor in China
 
(U.S. Energy Information Administration; Sept. 17) - Economic deceleration, industry restructuring and new energy and environmental policies have slowed China’s growth in coal consumption and are also driving more centralized and cleaner uses of coal. After nearly a decade of rapid growth, coal consumption — which currently supplies two-thirds of China's overall energy use — grew only 1 to 2 percent in 2012 and 2013 and was essentially flat in 2014, according to the U.S. Energy Information Administration.
 
Total energy consumption in China has slowed as its economic growth has eased and as the composition of its gross domestic product has shifted. In 2013, the service-sector share of GDP surpassed the industry-sector share for the first time in Chinese history. The service-sector share further increased to 48 percent in 2014. Policies to accelerate the development of service industries are likely to sustain the transition away from industry, further weakening coal consumption, the EIA said in its report.
 
Industry restructuring has reduced China’s energy demand growth from coal-intensive industries such as steel, cement and fertilizer as industry growth slows and processes become more energy efficient. In addition, China's severe air pollution challenges have led to new policies and regulations to restrict coal use in coastal China, to upgrade the nation's coal-fired power generation fleet, and to accelerate the increase of alternative energy technologies.
 
 
Idled oil rigs mean less gas production in U.S.
 
(Bloomberg; Sept. 16) - The retrenchment in drilling for oil in the U.S. is threatening to leave a different market short: natural gas. “The impacts of oil-rig counts extend beyond oil; the outlook for U.S. natural gas is critically dependent on the outcome of this balancing act in U.S. oil rigs,” Anthony Yuen, a strategist at Citigroup in New York, said in a report to clients Sept. 16. “If the oil market remains oversupplied and oil-rig counts fall, the decline in associated gas production would leave the market short of gas.”
 
Associated gas is the gas that comes out of oil wells along with the crude. Supplies of this byproduct from fields including the Bakken formation in North Dakota and the Eagle Ford in Texas may fall by about 1 billion cubic feet a day next year as drillers idle rigs in response to the collapse in oil prices, Yuen said. The U.S. Energy Information Administration has already forecast that shale gas production will drop in October for the fourth straight month, a record streak of declines.
 
Crude producers in the Lower 48 states may have to keep the number of working rigs low for a while longer to balance the global oil market, Yuen said. A premature recovery in the rig count may “exacerbate the current oversupplied environment” and weaken prices, he said. While oil prices have been down, natural gas futures have been lower, too, settling at $2.66 per million Btu on the New York Mercantile Exchange Sept. 16, down 41 percent from June 20, 2014.
 
 
Floating LNG storage, regasification ships gain in popularity
 
(Bloomberg; Sept. 15) - At a time when oil and gas producers are writing down assets and canceling projects worldwide, one niche area is booming. Hybrid ships, called floating storage and regasification units, or FSRUs, offer emerging nations from Egypt to Pakistan a cheaper, quicker way to attack power shortages by importing liquefied natural gas. They cost about $300 million to build, half as much as an onshore import terminal, and are up and running as much as six times faster, sometimes within as little as a year, according to FSRU owners Hoegh LNG Holding and Excelerate Energy.
 
Built at shipyards in South Korea, Hoegh sees as many as 55 such vessels in use within five years, from about 20 now and just one a decade ago. “The main driver is speed,” Sveinung Stohle, Hoegh’s chief executive officer, said by telephone from the company’s Oslo office. “Demand for FSRUs follows a drastic reduction in the cost of LNG. We see that this has caused a very strong increase in requests.”
 
FSRUs are emerging as the fastest alternative for gas imports as nations imposing limits on carbon dioxide emissions turn to cleaner-burning gas. Competition has cut costs of leasing such vessels by 20 percent to about $120,000 per day from five years ago, said Keith Bainbridge, managing director of industry consultant CS LNG in London. Once the 1,000-foot ships are moored, LNG is transferred from arriving tankers through pipes. The LNG is regasified onboard and typically used at a nearby power plant.
 
 
Australia antitrust regulator delays decision on Shell-BG deal
 
(Wall Street Journal; Sept. 17) – Shell’s $70 billion takeover of BG Group has hit a snag after Australia’s antitrust regulator flagged concerns the deal might squeeze domestic supplies of natural gas and drive up prices. The Australian Competition and Consumer Commission said Sept. 17 it would delay a decision on the deal by about two months toNov. 12, after receiving a welter of submissions from businesses worried Shell would curb local supply in favor of more lucrative sales to Asia through BG’s LNG terminal.
 
Shell’s proposed acquisition of BG is, in part, a bet that developing countries will move to cleaner-burning gas amid growing pressure to curb emissions. The regulator’s review of the Shell-BG tie-up has become entwined in a separate study of Australia’s East Coast gas market, which Commission Chairman Rod Sims said is one of the few in the world under the shadow of supply uncertainty despite a global gas production boom.
 
Australia is due to become the world’s biggest producer of liquefied natural gas within two years, as several multibillion-dollar export terminals that began construction when oil and gas prices ran hot start shipping cargoes of LNG to Asia. While that investment holds out the prospect of sharply higher revenues for state and federal governments in Australia, it has also spooked local businesses, which fear paying more for energy as fuel that would have previously fed the domestic market gets shipped overseas.
  
Gas association launches pro-pipeline public awareness campaign
 
(Houston Chronicle; Sept. 14) – Increased domestic production has spurred a need for new pipelines to carry natural gas across the country, but also a wariness by some Americans worried about pipelines snaking through the ground. The Interstate Natural Gas Association of America hopes to combat some of the skepticism by rolling out a new ready-for-social-media campaign with videos, graphics and a website emphasizing that pipelines are a vital energy link for the nation.
 
“If you think about citizens who live near pipelines or in communities where pipelines are proposed to be constructed, they probably don’t know much about natural gas or natural gas pipelines and the tremendous contributions (they) make to overall quality of life,” said Don Santa, CEO of the gas association. With the campaign, INGAA argues that pipelines are the safest method for transporting gas. In addition, gas is better for the environment than the coal it often displaces for power generation.
 
Cathy Landry, an INGAA spokeswoman, said the group is trying to reach “everyday Americans,” including landowners and others in communities affected by pipeline construction — people who may not realize that natural gas is used to generate electricity as well as fuel furnaces. The campaign is being launched as opponents to oil and gas development have focused more attention on pipelines.
  
Analyst forecasts another record year for U.S. gas production
 
(Platts; Sept. 18) - Record levels for production, power burn and storage injection will help make 2015 another record year for natural gas, Jeff Moore, senior energy analyst at Platts unit Bentek Energy, told attendees Sept. 18 at the 38th annual Coal Marketing Days conference in Pittsburgh. Moore said that while coal plant retirements have helped fuel an increase in natural gas generation, the real driver behind in the rise in demand is the commodity's continued low price.
 
With the Henry Hub price staying below $3 per million Btu, natural gas generation is deployed ahead of coal, Moore said. The only time gas demand for power generation was near these levels was in 2012, the year the Henry Hub price dipped to about $2 in May, he said. Bentek sees the price rounding out in 2015 at an average of $2.68 and increasing to $2.84 in 2016. From 2017 to 2020, Bentek expects the price to average $3.38, $3.85, $4.23 and $4.42, respectively.
 
Efficiencies in horizontal drilling and a drastic increase in the initial production rate from wells in the Marcellus and Utica shales will push gas production to a new high in 2015, Moore said. Total U.S. marketed gas production is averaging 72 billion to 72.5 billion cubic feet per day this year but will ramp up to near 74 bcf by the end of 2015, Moore said. Gas inventory levels are predicted at an all-time high at the end of the year, but the volumes depend on winter weather.
  
U.S. oil production finally starts trending lower
 
(EnergyWire; Sept. 17) – U.S. crude oil production is finally starting to decline, according to statistics and experts. After months of production increases — even in the midst of falling oil prices — total output volumes have been trending downward as production growth in some areas is being outpaced by declines in major shale oil regions. The trend appears to be holding.
 
Earlier, it had been difficult to tell whether output declines represented a steady trend or the occasional variance seen month to month. Output continues to expand in the Permian Basin of west Texas and southeastern New Mexico and in federal waters in the Gulf of Mexico. But declines in the North Dakota Bakken Shale, in south Texas' Eagle Ford Shale and from other fields appear to be outpacing growth elsewhere.
 
"There is evidence now that production from the shale plays is declining, not at a rapid rate, but I just recently saw some data for the Eagle Ford and the Bakken which do show production declines over the last couple of weeks," said Bernard Weinstein, director at the Maguire Energy Institute at Southern Methodist University. The U.S. Energy Information Administration sees a gradual decline continuing for the next year, with U.S. oil production forecast to reach 8.63 million barrels a day in August 2016, a drop of nearly 1 million barrels per day from the April 2015 high-water mark.
   
Low oil prices may cut into production as companies run out of cash
 
(Bloomberg; Sept. 17) - As much as 400,000 barrels a day of oil production is at risk as U.S. shale companies like Samson Resources run out of money and are forced to slow drilling. Total debt for half of the companies in a Bloomberg index of more than 60 producers has risen to a level that represents 40 percent of their enterprise value. It’s a sign of distress that shows equity values falling in the face of oil’s crash, said Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors.
 
The companies facing high debt loads, which include Encana and Chesapeake Energy, produced 1.1 million barrels a day in the second quarter of this year, according to data compiled by Bloomberg. If more companies file for bankruptcy as Samson did Sept. 16, or embrace the kinds of draconian cuts needed to survive, output could fall by 200,000 to 400,000 barrels, Thummel said. A loss of that much crude would be the steepest U.S. decline since 1989 — about the same as Oklahoma, the sixth-largest producing state.
 
“We are going to see a major response because these financially challenged companies won’t be able to produce as much as they did in the past,” he said. As companies run short on cash from low oil prices, they may be forced to idle drilling rigs, file bankruptcy or seek more expensive financing and sell assets. In the past year, U.S. oil producers used 83 percent of their operating cash flow to pay for debt service, according to the U.S. Energy Information Administration. A year earlier, it was less than 60 percent.

Categories:

9-16-15

16 September 2015 7:05am

 

Today's relevant energy links from Consumer Energy Alliance:

Tom Brennan, Snowflake Rebellion, Dave Harbour PhotoDave, I’ve been meaning to tell you for a long time that your website is a great source of information on what is happening in the industry in our part of the world. - Tom Brennan (NGP Photo, autographing his book, Snowflake Rebellion)

Bloomberg BusinessNew Yorkers Reap Lower Power Bills From Shale Gas Bonanza
The shale boom has reached the Big Apple. Wholesale on-peak electricity prices for Manhattan and its four neighboring boroughs averaged $40.99 a megawatt-hour since the start of July through Sept. 11. They’re headed for a record third-quarter low, based on Independent System Operator Inc. data going back to 2006.
 
NBC NewsMeltdown: Where Is the U.S. in the Race for the Arctic?
In the vast Arctic, melting ice caused by global warming is bringing new opportunities, and new problems, to a region that could be the next front in a very cold war — a battle that some say America is losing to the Russians. It's the Coast Guard's job to navigate these turbulent waters — no easy task with an aging fleet stationed off the southern coast of Alaska and tight purse strings nearly 5,000 miles away in Washington, D.C.
 
BloombergAmerica's Shale Gas Supply Is Caught in its Longest-Ever Decline
America’s shale gas boom hasn’t exactly been booming lately. Natural gas production from the seven largest U.S. shale deposits will drop for a fourth straight month in October to average 44.784 billion cubic feet a day, the lowest since March, based on an Energy Information Administration forecast released Monday. That’s the longest streak of monthly declines in government data going back to 2007.
 
BloombergU.S. natural gas glut could vanish in 2016, Bank of America says
The glut in U.S. natural gas could come to an end in 2016 as producers struggling with a sustained price slump cut back output. Total production in the lower 48 states may fall by 0.3 billion cubic feet a day compared with 2015, reversing the increase of 3.9 billion cubic feet a day seen in the past two years, Bank of America analysts including Sabine Schels and Francisco Blanch said in a note to clients Monday.
 
Fuel FixEIA: Shale output fell by 350,000 barrels a day since April
Oil production at four major U.S. shale plays is falling sharply. Government analysts say shale oil fields in Texas, Colorado, North Dakota and Ohio are set to decline by 80,000 barrels a day this month, bringing their combined daily output to 5.2 million barrels in October.
 
Associated PressRepublicans Oppose New Safety Rules on Offshore Drilling
Republican lawmakers on Tuesday criticized an Obama administration move to toughen standards for offshore drilling, saying the new rules would be costly for drillers and threaten to shut down oil and gas exploration off the nation's coasts.
 
Town Hall19 House Members Sponsor Articles of Impeachment against EPA Administrator
Nineteen members of the House of Representatives have co-sponsored articles of impeachment against Environmental Protection Agency Administrator Gina McCarthy. According to the Dallas Morning News, the resolution accuses McCarthy of perjury and making false claims to the House Committee on Science, Space and Technology.
 
Wall Street JournalU.S., China Build on Plan to Cut Emissions
Next week, President Barack Obama and Chinese President Xi Jinping will add to earlier pledges to cut greenhouse-gas emissions with specific guidance on what the two countries will do at home to keep climate change at bay, officials said. The United States and China announced Tuesday that cities, states and provinces in both countries would commit to taking parallel steps to address climate change.
 
Washington TimesObama set to push on with climate agenda
Despite bitter opposition in Congress, a series of legal setbacks and data showing its environmental regulations will drive up electricity rates, the Obama administration this week is moving full-speed ahead with its climate change agenda, prodding U.S. cities into new policies to reduce carbon emissions.
 
Washington ExaminerRepublican governor faces pressure not to submit to Obama's climate plan
Free-market groups are putting pressure on Michigan Republican Gov. Rick Snyder to back down from his recent decision to comply with President Obama's strict new emission rules for power plants. Snyder made the decision Sept. 1, nearly a month after Obama finalized the rules, called the Clean Power Plan.
 
The HillInterior chief defends Obama against liberal fire
Interior Secretary Sally Jewell fought back on Tuesday against criticisms of her agency from environmentalists who say the fossil fuel production it allows goes against President Obama’s climate goals.
 
Washington TimesObama announces new round of taxpayer money for solar power projects
The Obama administration on Wednesday announced $120 million in funding for solar power projects across the country, continuing its policy of using taxpayer dollars to fund the nation’s transition away from fossil fuels and toward renewable energy.
 
ReutersWater demand from fracking less than 1 percent of U.S. total: study
Fracking by the U.S. oil and gas industry has increased the burden on the nation's water resources, but still accounts for less than 1 percent of America's total industrial water use, according to a paper by researchers at Duke University published on Tuesday.
 
Wall Street JournalSaudis Make Push for Nuclear Energy
While the world’s attention has focused on Iran’s nuclear ambitions, other players in the Middle East have been laying their own plans to develop nuclear power to meet future energy needs. Saudi Arabia, the most ambitious of the group, has announced plans to build 16 reactors over the next several decades, providing a projected 15% of the country’s electricity possibly as early as 2032, according to a Saudi government website.
 
RigzoneOil, Gas Works on Solution to Reduce Freshwater in Fracking
While the quantity of water used for hydraulic fracturing increases, essentially with each new well put into production, industry researchers are developing ways to diminish the quality of that water – eliminating freshwater from the solution.
 
Fuel FixHouse Majority Leader McCarthy announces vote to repeal crude export ban at GHP gathering
The U.S. House of Representatives will move a bill repealing the decades-old ban on exporting crude oil to a vote by the end of the month, the chamber’s majority leader announced in Houston on Tuesday. The vote is a victory for a coalition of Houston-based oil producers who have lobbied for the change since a glut of oil began flowing from U.S. shale.
 
San Antonio Express-NewsAdministration balks at GOP-led effort to lift oil export ban
The Obama administration signaled Tuesday that it would not back legislation to authorize widespread crude exports, as a Republican-led effort to lift decades-old restrictions on foreign oil sales gained steam on Capitol Hill.
 
Alaska Dispatch News: Activists target federal energy leases in climate change fight
President Barack Obama has been amping up his rhetoric about addressing climate change, but a coalition of environmental organizations released a letter on Mondaypushing his administration to do more.
 
Midland Reporter-TelegramCongressman decries regulatory hurdles faced by energy industry
Permian Basin oil and gas operators working through the economic challenges presented by $45 crude oil prices are well aware of the other challenge they face. “This is the most unfriendly regulatory environment we’ve ever been in,” said Ben Shepperd, president of the Permian Basin Petroleum Association.
 
Dallas Morning NewsIn U.S. shale fields, including in Texas, oil flow slows
The flow of crude from what had been the country’s fastest-growing oil and gas regions, like Texas’ Eagle Ford shale, is declining rapidly, according to data released by the federal government this week.
 
Midland Star-TelegramDramatic drop in Texas drilling permits continues
As if we needed another sign of the decline in oil drilling, the Texas Railroad Commission said Tuesday that it issued only 864 drilling permits in August, a 65 percent decrease from the same month last year. The August 2015 report shows that the agency processed 730 permits to drill new oil or natural gas wells, 14 to re-enter plugged well bores and 120 to re-complete existing wells.
 
Akron Beacon JournalU.S. economy, auto sales boost growth in gasoline use
U.S. motor gasoline product supplied, a proxy for gasoline use in the United States, has been rising after reaching an 11-year low in 2012. Although lower gasoline prices have been an important factor in the increase in gasoline use so far in 2015, changes in the labor market and in the vehicle sales mix over the past few years also have contributed to the rise in gasoline use.
 
Columbus DispatchStatOil fined $223,000 over Ohio fracking-well fire
Ohio environmental regulators will fine an international oil and gas company about $223,000 for a blowout and fire last summer at a Monroe County fracking well that contaminated a nearby stream, killed fish for miles and forced about 25 people from their houses.
 
Philadelphia InquirerAmid trying times for industry, shale-gas conference returns
After shifting its annual conference to Western Pennsylvania last year, the shale-gas industry returns to Philadelphia on Wednesday for a two-day gathering amid an economic climate substantially subdued from the industry's early go-go years.
 
StateImpact PennsylvaniaFederal air rules force coal plants to clean up or shut down
John and Maureen Vilcek have lived exactly one mile from the coal-fired Homer City Generating Station in Indiana County, Pa. since the 1970s. They raised their children here, and hardly notice the constant rumble emanating from the plant up the road.

Categories:

9-15-15 "Tell It Like It Is"

15 September 2015 9:28am

Yesterday: LNG Prospects Lower.  Now: Hawaii, NOT a Prospective Customer For BC and Alaska

Yes, Low Oil Prices Also Affect Service Industries and Their Thousands of Employees and Sub Contractors!

EPA Alert

Calgary's New "Tell It Like It Is Leader"

Big OCS News Today: New Moratorium!


Reader Commentary, Below, and Our Reaction

Commentary, "Telling it like it is" carries with it a responsibility for diligence and judgment: We are honored to receive so many calls and emails every week, over many years, from readers throughout the world.  We hardly ever make public note of such moving messages, but we have archived a few here.  

We are deeply grateful for our reader interaction and wish to highlight these two examples (i.e. left column) today out of respect and appreciation for all faithful readers.

Such support keeps us going strong.  We know that industry cannot often "tell it like it is," for it is natural to fear that criticizing a local, state or federal regulator can produce retribution and shareholder losses.  This in a country wherein government has grown to not fear the people, as the Constitution envisioned.  

Ordinary citizens can't often take the time to study and communicate their reaction to complex energy issues; they just don't like the general result.

News media stories and editorials are pretty much sanitized by management.

So, it falls to independents like us to try to connect the dots and keep our readers informed via links, associations and commentary.  And we want you to know that we know our credibility rests upon our sense of responsibility and judgment.

With your continued support, we will not be deterred from performing this duty as responsibly and with as much good judgment as possible.  -dh 

 ...glad you provide this information.   It keeps us IN THE LOOP!  Have a GREAT WEEK, DAVE!  Bunny and Al Chong


... Most importantly you add such wealth of Knowledge on our energy  and industrial and political business news in Alaska. 

You are read by many and are the only news letter that covers all the economic and environmental concerns that occur in Alaska and DC as well as sister energy States like North Dakota and Wyoming. 

I do not know why others do not more aggressively cover the government and especially the "Political Industry"....  Thanks, Dave.   Paul Richards


Comment: Way to go, Marcella Munro!  Could Canada be thirsting as much for anti-PC, "tell it like it is" truth-telling leaders as the U.S.?!!!

Calgary Herald by Don Braid.  Marcella Munro, Premier Rachel Notley’s suddenly controversial new hire at McDougall Centre, has a surprising answer when asked if she’s against pipelines and the oilsands.

“Me? My BMW 325i is my favourite possession. There is no planet on which I could try to argue against the oilsands. I love all the good things petroleum does for me — including driving too fast on Highway 2.”

Notley’s new Calgary “outreach” director certainly isn’t hiding under the stairs at McDougall after being fiercely attacked by the Wildrose and PCs.

EPA ALERT: Let's mark our Thursday calendars.  We would bet EPA will swiftly change tactics from apologizing for incompetence to avoiding blame and liability (i.e. Lawyer talk: "We are sorry for the inconvenience but were just doing our job to clean up industry's mess."  -dh)

Committee on Natural Resources and Committee on Oversight and Government Reform to Hold Joint Hearing on the EPA’s Animas Spill.

WASHINGTON, D.C. – On Thursday, September 17, 2015, at 10:00 AM, in Room 2167 Rayburn House Office Building, the Committee on Natural Resources and the Committee on Oversight and Government Reform will hold a joint oversight hearing titled, “EPA’s Animas Spill.”

WHAT:

Committee on Natural Resources and Committee on Oversight and Government Reform joint oversight hearing titled, “EPA’s Animas Spill”

WHEN: Thursday, September 17, 10:00 AM 

WHERE: 2167 Rayburn House Office Building

Visit the Committee Calendar for additional information, once it is made available. The meeting is open to the public and a live video stream will be broadcast at House Committee on Natural Resources.  


LNG Prospects

The Asia Pacific Resilience Summit kicked off this morning, an event that showcases clean tech solutions for island grids, communities, and military applications across the Pacific. The opening keynote speaker, Governor David Ige, wasted no time in making major headlines, stating, for the first time publicly, a strong opposition to proposed LNG projects.


 

Yes, Low Oil Prices Also Affect Support Industries!  

Just as oil and gas producers and taxing governments are affected by low oil prices, so are the support industries and their thousands of employees, subcontractors and shareholders.  Today, we bring you a few words from our respected, anonymous energy consultant friend from the Mid Atlantic region.  -dh

"We have continually pointed out that the business models of the private equity companies and the E&P industry could hardly be more antithetical to each other. Cash flow back to the investor is a necessary part of the PE investment strategy, while E&Ps think positive cash flows are for sissies and big, dumb integrated oil companies. But the flood of money into the market and low interest rates have brought them together.  Can this marriage be salvaged?

"One ancillary thought: Given the cash shortage for E&Ps for 2016, the Service Companies may get hit worse.

"Here are some thoughts from Wunderlich Securities on the prospects:"

Below the surface of the energy market, we believe that there exists a confluence of factors ready to bubble up and impact E&Ps, OFS, and MLPs. With continually low natural gas prices, abysmal NGL prices, very weak oil prices, and no V-shaped recovery in sight...

...structural shifts in the energy landscape.... Private equity continues to have a considerable interest in the space ... some banks may look to reduce their exposure.... the amount of funds in the space could remain very high. However, the cost of those funds could also be rising as funding from private equity replaces more conventional sources. ...with commodity prices making new lows and fewer hedges in 2016 than in 2015, we think there is a confluence of factors that could alter the energy landscape in the coming 3-6 months....


Big OCS News Today

Obama Administration’s Regulatory Agenda will Result in Virtual Moratorium on Gulf Offshore Energy Development

Administration’s Policies “Undermine Safety, Rather Than Enhance It”

WASHINGTON, D.C. – Today, the House Committee on Natural Resources held an oversight hearing in New Orleans, LA, on the current state of offshore oil and gas activity in the Gulf of Mexico.  The panel received testimony from U.S. Senators David Vitter (R-LA) and Bill Cassidy (R-LA), industry representatives, and the U.S. Department of the Interior’s (DOI) Bureau of Safety and Environmental Enforcement (BSEE).

The hearing focused on the impact of federal policies on energy development in the Gulf, including DOI’s proposed well control rule, and what actions can be taken to promote the responsible development of outer Continental Shelf (OCS) resources.

"Federal regulations such as the proposed well-control threaten another moratorium by shutting down the majority of the Gulf rig fleet.  Some provisions of this rule could actually undermine safety, rather than enhance it," stated Committee on Natural Resources Chairman Rob Bishop (R-UT). "Other federal measures, such as the crude export ban, limit new market opportunities and U.S. production potential. We should encourage the production of affordable energy, not continue decades-old policies that force companies to shut-in those resources because they are not economic to bring to market."

"This administration's energy policy appears to have two objectives: cause Louisianans to lose their jobs and continue our dependence on foreign oil,” stated Rep. Garrett Graves (R-LA). “We have already been through the moratorium and permitorium where the federal government shutdown the Gulf of Mexico's energy fields. These new illogical regulations on the offshore industry –  conceived in a vacuum with insufficient stakeholder input – will not ensure safe exploration and production operations,  but they will result in less production, more supply boats tied up and more people losing their energy jobs."

“The Obama Administration was held in contempt of court over its previous moratorium in the Gulf, so now President Obama is seeking through regulation to create a new moratorium by making it prohibitively expensive to drill in the Gulf,” stated Water, Power and Oceans Subcommittee Chairman John Fleming (R-LA). “I’m glad the BSEE will finally be sitting down with industry experts, but it’s a shame they didn’t do that from the start."

 

Categories:

9-10-15 Once again--you read it here first!

10 September 2015 8:46am

We love the Energy Producing States Coalition's advocacy for domestic energy and join the group in welcoming a new legislative member, Pennsylvania's Representative Pam Snyder (Photo).  -dh


Calgary Herald, by Geoffrey Morgan.Suncor Energy Inc.’s Steve Williams blasted the “stupidity” of pipeline politics in the U.S. and Canada....


Tom Brennan, Anchorage Daily Planet, Alaska Waterfoul, Dave Harbour PhotoOur Readers will be interested in Tom Brennan's (NGP Photo) Sunday, Anchorage Daily Planet review of the role Exxon, ARCO, Tom, Hank Rosenthal and others -- including your author -- played in Alaska Waterfowl enhancement policies of the 1970s and 80s.  -dh

Exxon CEO Rex Tillerson explains factors contributing to middle eastern oil producer decisions affecting world-wide supply, demand and pricing.  This excerpt once again underlines the importance of competitive tax and royalty policies.  In these volatile economic times, elected leaders in Alberta, Alaska and other North American energy producing areas should be focused more on "what we can do to attract investment," rather than, "what can we do to squeeze more blood out of the oil producing 'turnips' at the expense of future prosperity."  -dh


Alaska Governor Bill Walker, Japan, LNG Conference, Dave Harbour Photo

ADN.  Alaska Governor pays gasline consultants more than $100k PER MONTH.  (Comment: meanwhile, Alaska's annual budget deficit exceeds $3 billion.  Spending programs are on the chopping block and higher taxes are on the horizon.  Brilliant.   -dh)

ADN.  Gov. Bill Walker (NGP Photo) is heading to Japan to speak at a conference on the global liquefied natural gas market.  Walker spokeswoman Katie Marquette says the governor will be in Tokyo next week for the LNG Producer-Consumer Conference. While there, he plans to meet with prospective liquefied natural gas buyers about bringing Alaska's gas to the global market.  (Meanwhile, the LNG world continues to be flooded with competitors -- leading to a growing trend of LNG spot market pricing.  Depressed oil and gas prices are in the process of stranding big LNG projects, including Russia's Arctic energy development plans.  To deepen our understanding of world price trends, we provide this  interview summary featuring Exxon's CEO.  -dh)

 

 

Today's comment from our anonymous, Aussie LNG expert reader:

LNG

The troubled Yamal LNG project in Arctic Russia was the subject of a recent Reuters report which provided an update on the financing for the project.  As we noted last week, the appetite of Chinese financiers to come to the Yamal party is far less than the Russians would like and other options appear nebulous.

That leaves JV partner Total potentially having to provide even more support for Yamal than it has already given.  This factor could have some relevance to current machinations in Australia and PNG over Woodside Petroleum's (WPL) proposal to acquire Oil Search (OSH).

Media reports have speculated that Total could be a potential rival bidder for OSH.  However, even a Super-Major needs to manage its available cash, and with its commitments to Yamal possibly being unpredictable, Total may be reluctant to over-stretch itself in PNG.

 


Energy Supply/Demand/Pricing.  

Here is an excerpt of Exxon CEO Rex Tillerson's insightful comments during a recent interview by Petroleum Intelligence Weekly.  This excerpt and commentary was provided by one of our gracious, anonymous readers, a Mid-Atlantic energy consultant:

...comments during an interview with with Rex Tillerson, CEO of Exxon, on several aspects of the current global crude oil market. In particular, we were interested in his observations of OPEC’s (non)actions to support crude oil pricing.  He provides an excellent, long-term view of the dilemma facing the Saudis, particularly after they spent billions to provide reserve supply capacity after 2008. This is an excellent observation on how Saudi Arabia (essentially OPEC in one country) is really focused on how the oil market will morph from its current condition. ... There is obviously some collateral damage inflicted on some players (Russia, Venezuela, Iran, et al), but it does not represent the primary issue being dealt with by Saudis.

The relevant passage:

Regarding Opec, Tillerson does not believe that the organization, and Saudi Arabia in particular, has given up its oil market management role; rather, it has recognized the magnitude of the challenge created by current market conditions. He explains this point as follows:

"I don't think Opec has surrendered at all. I think they have recognized what they are dealing with. Their alternatives were to do what they have traditionally done when we have gone through these cycles, and that is manage their production to sustain a price band.They, too, rightly judged how out of balance this thing was and concluded that wasn't going to get them anywhere other than to really have to curtail their production. So, I think what they are doing is classic price discovery. It is largely the Saudis that have decided they need to undertake this. It is the future of the kingdom — how they are going to manage their resources, what level of capacity do they need to maintain, and [whether] they have to continue to invest to maintain capacity that they cannot produce. This is something that that a lot of folks overlook. And I remind folks that when prices went out of whack, got up to the $140 per barrel range, the Saudis, [Oil Minister] Ali Naimi in particular, recognized that was not good. The world looked at spare capacity and it was gone, evaporated. The Saudis had on everything they could produce, so, the king authorized them to develop two million barrels per day of capacity with the intent of shutting it in. I tell policymakers in Washington, who bash these guys all the time, you don't understand, these are the best friends you've gotNo other nation in the world would invest billions and billions of dollars to develop 2 million b/d of oil producing capacity to shut it in. They had to demonstrate to the markets that spare capacity had been restored. Otherwise they can't play that role. Now they've invested all that money, they've got all that spare capacity, and now they are asking themselves: boy, did we make a big mistake? All this North American stuff came on and they have to understand what the pricing structure is today in order to make decisions about how much spare capacity, if any, they need to manage in the future in order to continue to play their role. So, I don't think they have changed their view about what role they need to play and what role they want to play. It is rather: how do they play it? And that is not obvious to any of us. It is going to be very informative to all of us to understand the price discovery process. Just where are the marginal barrels and how elastic are they? A lot of people thought it gets to $60 and everything would become obvious. I never held that view. I commented early on that I thought people would be pretty surprised at just how resilient this thing is, which is what I told the Opec meeting when I spoke to them in June. I said, you need to be ready for this to take a while. I think the fact that we have gone through several of these price convulsions this year, shouldn't be a surprise to anyone."

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