You Read It Here First
See Our Aussie Energy Expert's Current View On Alaska's Energy 'Leadership'
ADN/AP Shell Announcement by Dan Joling/Yereth Rosen
Our Commentary On Shell's Alaskan Arctic OCS Exit
With Alaska's "Plan B" failing what's wrong with relying again on "Plan A"?
Alaskans will be seriously questioning the future of their state when they wake up and read the news this morning.
This is because Alaska is more than any other North American state or province dependent on oil production and production is down, down, down.
Alaska North Slope (ANS) production once fed about 20% of domestic oil supply at a rate in the '80s that exceeded 2 million barrels per day.
The Trans Alaska Pipeline System (TAPS) transporting that oil is about 40 years old now and -- as important as it still is -- it is merely a reflection of its former, vigorous self, losing about 5% of its throughput every year as ANS field production declines. It's nearly 3/4 empty and without added production could shut down in a few years.
Shell's success could have helped sustain Alaska's job economy and ANS throughput in TAPS.
Alaska depends upon taxes and royalties from oil flowing through TAPS for almost 90% of its lavish state operating budget.
Recent statistics label it the highest per capita spending state in the nation and the highest per capita debtor state in the nation. It has the highest number of non-profit corporations in the country per capita, most of which are directly or indirectly dependent on oil for at least part of their budgets.
Available state savings accounts currently protect a $3.5 - 4 billion annual operating deficit, but that savings will be gone in a year or two. Even a return to $100/barrel oil would not put Alaska in the black based on current production and state spending trends.
In addition, over a third of the 49th State's total economy depends on oil revenue and oil-dependent jobs.
With falling production and increased opposition to oil operations both within and from outside Alaska, state policy has drifted aimlessly for many years.
It has pretty much been a policy of tax oil and spend that oil money while minimizing taxes/fees on people and maximizing transfers of state wealth to them.
"Plan A" first began to surface in the mid-1980s when various business groups began advocating for a constitutional amendment limiting government spending via a population and inflation formula.
By the early 1990s the University of Alaska's Institute of Social and Economic Research (ISER) began showing the public and elected leaders how very modest spending controls THEN could have provided a "safe" and sustainable glide path toward a long-term, sustainable economy for current and future generations.
ISER has provided another path to sustainability (i.e. "Maximum Sustainable Yield") for the last few years, also largely ignored.
Neither an effective constitutional spending limit nor economically viable "safe economic landing" were embraced by those holding the purse strings and whose pleasure and reelection were sustained by taxing oil and spending on constituent desires. (Note: Civic groups did succeed passing, in 1982, an amendment, but lawmakers loosened it to allow capital project designations, among others, to weaken the stricter "population and inflation" formula. (Alaska Constitution, Article IX, Sec. 16)
With oil income falling and spending continuing to increase over the years, even the most deluded politicians could see that "something should be done".
We call that "something" the strategy of hope, which took four forms:
a. Hope that the 1980 Alaska National Interest Lands Conservation Act's congressionally authorized "1002" area within the Arctic National Wildlife Range (ANWR) would be successfully developed, contributing to TAPS throughput, jobs and economic stability; and
b. Hope that sufficient new oil would be found in the National Petroleum Reserve Alaska to maintain robust throughput of TAPS, state economic stability and jobs; and
c. Hope that sufficient new oil would be found within existing Alaska North Slope fields and other state lands to maintain robust throughput of TAPS, jobs and state economic stability; and
d. Hope that sufficient new oil would be found in the Alaskan Arctic OCS to maintain robust throughput of TAPS, jobs and state economic stability.
And wouldn't it have been nice if all four hoped-four outcomes had materialized?
How has the strategy of hope worked out for Alaska?
Well, the State has continued its upward spending and taxing trend, somewhat ameliorated by an oil tax reform law two years ago, but continually challenged by liberal lawmakers and their constituencies since then.
The president is operating the federally owned land in ANWR as if it were a wilderness area -- part of his end run around Congress using the 'pen and a phone' tactic.
The president's Bureau of Land Management (BLM) has promulgated regulations that effectively 'lock up' half of the National Petroleum Reserve Alaska (NPR-A). Together with other regulatory agencies like the EPA, BLM has also significantly delayed and increased the expense of new oil production in areas of NPR-A that are open to exploration and development.
The current Governor is raising the old Palin flag of populism and anti-oil rhetoric, threatening the oil industry, endangering a pending LNG project, and signaling investors that investment even in existing oil fields -- and other state lands -- is accompanied by a high risk premium. Some even believe that the objective of the current governor is to socialize the energy industry (Our notes, here and here).
Now, on top of these first three disappointing Plan B results comes Shell's decision based, in part, on a hostile, federal regulatory regime.
Plan A -- involving support for Alaska's major industry and spending discipline -- didn't work out when the Plan B strategy of hope offered the above 4 lifelines.
Now that the reality is setting in that there is so little hope for the strategy of hope, Alaska may be forced to reconsider the best approach of all: the original Plan A.
Plan A has the negative qualities of being distasteful to big public spending and high oil taxing constituencies.
It requires citizens to 'do without' certain government amenities.
It requires lawmakers and the governor to seek the high road, be the adults in the room and prepare a sustainable economy for the next generation. This includes fighting the hostile and debilitating overreach of the federal government.
But Plan A has the major benefit of preventing intergenerational inequity, of providing a sustainable economy for Alaska's children rather than robbing their generation to secure the selfish wants of this generation.
Keep watching. We'll know the political class for what it is after absorbing today's news.
Will politicians embrace Plan A along with the dedication and self discipline it requires?
Or, will they do everything to avoid political pain at the expense of the next generation (i.e. as the federal government has done), perhaps by constructing a Plan C that is no more responsible than Plan B's strategy of hope?
Royal Dutch Shell will cease exploration in Arctic waters off Alaska's coast following disappointing results from an exploratory well backed by billions in investment and years of work
Shell has spent upward of $7 billion on Arctic offshore exploration, including $2.1 billion in 2008 for leases in the Chukchi Sea off Alaska's northwest coast, where an exploratory well about 80 miles off shore drilled to 6,800 feet but yielded disappointing results.
"Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S.," Marvin Odum, president of Shell USA, said in The Hague, Netherlands. "However, this is a clearly disappointing exploration outcome for this part of the basin."
Shell will end exploration off Alaska "for the foreseeable future," the company said, because of the well results and because of the "challenging and unpredictable federal regulatory environment in offshore Alaska. (Our emphasis added. -dh)
The Burger J well drilled this summer will be plugged and abandoned, Shell spokeswoman Megan Baldino said.
Other references will be added here:
- Wall Street Journal
- Greenpeace's "Great News"
- Alaska Oil & Gas Association
- Consumer Energy Alliance
Alaska's LNG Prospects
Today, our Aussie oil and gas analyst friend wrote:
Further to the news story on Friday about the sovereign risks facing LNG projects even in the USA, such as Alaska LNG (AKLNG) - Alaska's populist Governor has subsequently formally introduced a concept that no doubt will look attractive to his peers in Mozambique, Tanzania, etc - a "gas reserves tax".
The intent of this concept is to tax resources in the ground, thereby presumably encouraging oil companies to develop assets.
The concept shows a fundamental lack of understanding as to what are "reserves" - which seems surprising for a State which is built on the oil industry.
Although Alaska's North Slope contains very substantial and well understood contingent resources of gas - it contains no gas reserves and will not do so until AKLNG reaches FID (i.e. reserves require commerciality).
By seeking to tax in-ground resources, Alaska's Governor reduces the chances of such resources actually becoming (commercially available) reserves.
Free subscription to Aussie Oil & Gas Observer
September 25, 2015
Regular readers will know that this blog considers the Alaska LNG (AKLNG) project to be the Aesopian tortoise of the LNG project world – not as flashy as some, but plodding towards first gas next decade.
However, that tortoise carries a heavy shell that would be familiar to LNG project proponents in most locations around the world – a Government that wants to maximize its share of something that does not as yet exist – and therefore risks getting a larger share in nothing rather than a reasonable share in something.
Australian readers of this blog will likely be familiar with only one Alaskan Governor – the surprisingly socialist (when it comes to taxing oil companies) Sarah Palin. Her populist instincts live on in the State and even the Russian news service Interfax today points out that AKLNG risks being bogged down by politics
Alaskan based website Northern Gas Pipelines today provides an update on the latest Government meddling in AKLNG and asks the reasonable question – “with so many government cooks in the LNG kitchen, really, what could possibly go wrong?”
SitNews, Ketchikan, Alaska, by Mary Kauffman
Alaska Governor Bill Walker issued a proclamation Thursday calling the Alaska Legislature into a special session next month to consider legislation to move a project forward to get the natural gas on the North Slope to market. Efforts to to commercialize North Slope gas dates back to the 1970s.
Addressing what the Governor describes as the urgency of North Slope gas production, Walker called the special session to be held in Juneau on October 24th.
“With a $3.5 billion budget deficit, this gasline project has gone from a wish-list item to a must-have,” said Governor Walker. “Under the negotiation process I inherited, very little has been accomplished on the commercial agreements. It is time to make the necessary legislative changes so a single party cannot delay the production of Alaska’s natural gas resources and sway our destiny.”
Senator Lisa Murkowski's reaction to Shell's announcement
U.S. Sen. Lisa Murkowski, R-Alaska, today released the following statement regarding Shell’s decision to suspend operations in Alaska’s offshore waters:
“I am extremely disappointed by this decision, just as I have been deeply frustrated by the years-long path that led to it.
“In the more than seven years that Shell has held leases in the Chukchi, it has only recently been allowed to complete a single well. What we have here is a case in which a company’s commercial efforts could not overcome a burdensome and often contradictory regulatory environment. The Interior Department has made no effort to extend lease terms, as recommended by the National Petroleum Council. Instead, Interior placed significant limits on this season’s activities, which resulted in a drilling rig sitting idle, and is widely expected to issue additional regulations in the coming weeks that will make it even harder to drill. Add this all up, and it is clear that the federal regulatory environment – uncertain, everchanging, and continuing to deteriorate – was a significant factor in Shell’s decision.
“What we need – but still do not have – is a predictable and sensible regulatory system both onshore and offshore that encourages companies to make major investments in our future. Continued uncertainty will only further damage our competitiveness and our economy. And so today, I call on the administration to work with Alaskans – to develop a legitimate plan, driven by our input and preferences, to ensure the prolific resources in our federal areas are produced.
“There are many steps that can be taken, if the Interior Department and others commit to working with us. We must enable the sanctioning of GMT-1 and further development in NPR-A, rapidly progress Liberty and open new areas in the nearshore Beaufort Sea, extend offshore lease terms, conduct Lease Sale 237 as scheduled, finalize a strong Five-Year Plan for 2017-2022, provide for offshore revenue sharing, and expedite leasing throughout the state – including the non-wilderness portion of ANWR.
“There is also more at stake here than the current status of one company’s exploration program. Development in the Arctic is going to happen – if not here, then in Russia and Canada, and by non-Arctic nations. I personally believe that America should lead the way. The Arctic is crucial to our entire nation’s future, and we can no longer rely solely on private companies to bring investments in science and infrastructure to the region. As the Arctic continues to open, we urgently need to accelerate our national security investments in icebreakers, ports, and other necessities.” (See the source here.)
TODAY'S RELEVANT CONSUMER ENERGY ALLIANCE ENERGY CLIPS:
Southeast Green: PACE Says EPA's Clean Power Plan Would Raise Consumer Costs, Yet Fail to Lower Earth's Temperature
The Partnership for Affordable Clean Energy (PACE) issued a statement today that criticized the Environmental Protection Agency's unprecedented mandate on carbon dioxide emissions under its Clean Air Plan, especially the change to demand more reductions by 2030.
DC City Biz List: Offshore Drilling Could Boost The Economy Or Be An Unnecessary Risk
Drilling for oil the coast of Virginia is either a chance to boost the economy or an unnecessary risk for beachfront communities and the environment. Voices on both sides of the argument were in Richmond on Thursday for a forum hosted by the Consumer Energy Alliance.
Consumer Energy Alliance: CEA Leads Discussion on the Need for Responsible Atlantic Offshore Energy Development
Consumer Energy Alliance today hosted the 2015 Atlantic Energy Forum in Richmond, Virginia, featuring Abigail Ross Hopper, Director of the Bureau of Ocean Energy Management and other distinguished panelists.
New York Times: Shell Abandons Disappointing Offshore Alaskan Well
Royal Dutch Shell said Monday that it would stop exploration off the coast of Alaska “for the foreseeable future.” The decision came after the Burger J well, which the company drilled this summer, produced disappointing results. The company said the well had “found indications of oil and gas, but these are not sufficient to warrant further exploration” of the Burger prospect, a geological structure.
The Hill: Senate Dems tell Obama to end Arctic drilling
Some Senate Democrats are once again asking President Obama to end oil and natural gas drilling in the Arctic Ocean. In a letter Friday, 12 senators asked Obama to block any additional drilling after Royal Dutch Shell wraps up its exploratory drilling in the Chukchi Sea, northwest of Alaska, this fall.
The Hill: Clinton explains shift on Keystone, other key issues
Hillary Clinton on Sunday pointed to the nation’s shifting energy profile for her opposition to the Keystone XL pipeline after she had initially seemed to voice support for its construction. In an interview on NBC’s “Meet the Press,” Chuck Todd asked Clinton if her position on Keystone had changed as a matter of political expediency.
Post and Courier: Hillary’s slick move on XL pipeline
Hillary Clinton continued her unimpeded march toward the Democratic presidential nomination for 2016 by announcing her opposition to the Keystone XL pipeline. In doing so, she checked another box on her campaign strategy list, reassuring some core Democratic voters and probably ensuring some large campaign contributions.
The Hill: Energy empowers the world’s poor
The White House, the United Nations, even the Vatican are in full court press for action to reduce manmade global warming at the climate summit in December. Many well-intentioned people believe manmade global warming is so dangerous we should spend trillions trying to prevent it by reducing emissions of carbon dioxide (CO2), which would require tremendous reductions in fossil fuel use.
Fortune: Why America’s power grid needs natural gas now more than ever
Now that the Obama administration has finalized its Clean Power Plan regulating greenhouse gas (GHG) emissions from the power sector, the focus of attention turns to the states, which must now find a way to reduce emissions consistent with the Plan. One question states face as they envision a lower carbon future is how much to rely on natural gas-fired generation.
Washington Examiner: House sets vote to lift oil export ban
The House is set to consider a bill on the floor this week to lift a 40-year-old ban on exporting crude oil from the United States. The bill is being supported by the House leadership as integral to the Republican energy agenda this Congress, and many high-level lawmakers have vowed to see it passed before the end of the year.
Bloomberg: Oil Traders May Look to the Sea for Profit Amid Price Collapse
The global oil glut may soon expand to the ocean. While traders are already cashing in on the surplus by housing oil in onshore tanks across the globe -- including on the tiny Caribbean island of St. Lucia-- expanding the storage to tankers at sea may near a point where it becomes profitable, according to Citigroup Inc., Goldman Sachs Group Inc. and IHS Maritime & Trade.
Associated Press: Alaska’s Walker brushes aside reserves tax criticism
Gov. Bill Walker on Friday brushed aside criticism from Republican lawmakers that they were blindsided by his call to reinstate the gas reserves tax during the upcoming special session. “I sat right at this table and talked about fiscal certainty and project certainty,” Walker said during a news conference at his Anchorage office. He met with lawmakersMonday to inform them of his call for the special session, which starts Oct. 24 in Juneau.
Alaska Highway News: Despite fracking fights, resource extraction key for Peace Region, says NDP candidate
When Kathi Dickie was considering whether to run for parliament as a New Democrat in Northeast B.C., one question was on the top of her mind. "My question to the NDP was if you're against development of our natural resources, then I'm not your candidate," Dickie told the party brass.
Beaumont Enterprise: Keystone XL Pipeline needs market decision
Democratic presidential candidate Hillary Clinton came out against the Keystone XL Pipeline last week, a decision that will have an impact on the 2016 race. And Southeast Texas, because the Valero refinery in Port Arthur would process 150,000 barrels a day of tar sands crude from Canada - if it ever gets here.
Midland Reporter-Telegram: Government agency plans intensive safety study - Two-year project targets all aspects of oil and gas industry
High salaries and soaring numbers of new jobs were not the only things attracting attention as the oil and gas industry boomed in recent years. Industry fatality, injury and exposure rates drew focus, especially from the National Institute for Occupational Safety and Health, part of the Centers for Disease Control and Prevention.
Fuel Fix: California regulators restore emissions-cutting fuel rule
California regulators on Friday restored ambitious rules to cut transportation fuel emissions 10 percent within 5 years. The rules further strengthen California’s toughest-in-the-nation carbon emissions standards, but oil producers warn the changes could drive up costs for consumers at the gas pump.
Denver Post: Colorado oil companies say they are safer, stats say otherwise
The country's oil and gas companies say they are cooperating more and working harder to make jobs safer for employees even as a new report suggests oil-field work has never been more dangerous. The industry touts the rise of training networks, partnerships with governments and tough certification standards as helping to improve the work environment in one of the most dangerous jobs in the country.
Fuel Fix: Pro-industry group throws support behind drilling on Texas university land
A pro-industry group is firing back at calls by environmental advocates to restrict drilling on university land in Texas, arguing that oil and gas revenue has provided massive financial support for the University of Texas and Texas A&M.
Houston Chronicle: Community colleges offer training for petrochem jobs
Petrochemical plants along the Texas Gulf Coast and the Port of Houston are spending billions of dollars to expand facilities. It is estimated that these projects, along with the retirement of existing workers, will provide jobs for more than 50,000 skilled workers.
Austin American-Statesman: Houser: Concerns about fracking on UT land overstated
University Lands, which comprises about 2.1 million acres of land in West Texas, is a resource unlike any other in the nation. The lands were set aside in 1839 specifically to benefit Texas higher education. Today, more than 20 academic and health institutions in the University of Texas and Texas A&M systems benefit from these assets.
Baton Rouge Advocate: Our Views: New roles for natural gas, including on the road, will help Louisiana’s growing natural gas industry
The price of oil is sharply down from last year, but if there’s one thing Louisiana has still got, it’s lots of natural gas at a historically low price level. That is of course good news for the metropolitan areas of the state, including big refineries in Baton Rouge and Lake Charles and in the River Parishes above New Orleans.
Columbus Dispatch: Oil, gas industry boosts local economy
There is no question, these are tough times for Ohio’s oil and gas industry. Prices for crude oil and natural gas are at their lowest levels in decades. The downturn in prices and drilling activity has caused many people to ask questions: Is Ohio’s oil and gas industry still a major contributor to our local economy? How important is this industry to the average Ohioan? The answers are yes, and, in fact, more important now than ever.
Washington Times: GOP will allow tax vote, if Democrats secure enough support
Leaders of the Pennsylvania Legislature’s Republican majorities will allow a floor vote on a budget package that includes an income or sales tax increase if Democrats can secure enough support to pass it, officials said Friday.
Tribune-Review: 2 Marcellus pipeline projects move forward
Two large pipeline projects aimed at easing a glut of natural gas from the Marcellus shale advanced in the federal permitting process this week. Houston-based Columbia Pipeline Group said its proposal to build the $2 billion, 165-mile Mountaineer Xpress in West Virginia entered a pre-filing phase before the Federal Energy Regulatory Commission.
WKBN: Judge tosses Pa. landowners’ lawsuit against fracking opponents
A judge has dismissed a lawsuit that landowners filed against people and groups who oppose fracking in a western Pennsylvania township. Natural gas drilling has been delayed in Middlesex, Butler County while some of the rural community’s 800 residents challenge a zoning ordinance that would allow drilling in 90 percent of the rural township.
Myrtle Beach Sun News: Offshore Wind a Viable Source for Future Electrical Energy
It’s evident, or should be, that electrical energy in the future will come from sources other than fossil fuels such as coal, oil or even natural gas. Offshore winds are one of the most viable alternate energy sources and coastal South Carolina residents should applaud ongoing efforts to produce power from the wind.
YOU READ ALASKA GOVERNOR BILL WALKER'S ANNOUNCEMENTS HERE FIRST, YESTERDAY
BELOW IS TODAY'S UPDATE
(Scheduled for completion this weekend)
I always enjoy your newsletter, but your recent re: the NG issues one is special.
In my nearly 60 years in Alaska I have witnessed "many positive", and "too many negative" uses of the resources found within the boundaries of Alaska (not the boundaries of the State of Alaska) but nothing, not fish plants, not bridges to nowhere, not barley farms, etc., come anywhere near the Natural Gas fiasco that got underway with the El Paso group so long ago.
I have many observations and opinions on what has transpired over time, and will not list them.
But I continue to marvel at the way our "leaders" (elected and not) and the consultants, have been able to relieve the bank accounts (and the money goes somewhere!)!
Thanks, keep up the good reporting.
Terry T. Brady, MS (wood science), for
The Governor's Bombshell
We call Governor Bill Walker's actions this week a 'bombshell' because just as they create a new relationship with Alaska's largest investors so do they change Alaska's reputation as an investment destination. While the Governor has created "change he surely hopes Alaskans will believe in", at the same time, he has destroyed Alaska's attempt over the last few years to make itself more attractive to investors.
Here is, 1) what the Governor did and, 2) how we react to those actions after nearly 45 years of experience in Alaska as a regulator, educator, journalist, small business owner, municipal employee, oil industry executive and non-profit sector volunteer.
What The Governor Did
- Alaska Governor released a "Summary Report on the Review of the Alaska LNG Project Process"
- The "review" should be read in context of his very personal transmittal letter sent to legislators.
- Above is a video he released yesterday.
- Here is a bearish oil price report provided by the Governor
- Here is the Governor's proclamation calling for a special session to, among other things, establish a 'reserves tax' on industry investors applying to gas that is available but not committed to a market.
- Here is the Governor's news release, discussing the above actions.
- Alex DeMarban's ADN review of events.
- We think Alaska's leaders may sometimes forget that sophisticated observers are watching, from all over the world! Here's an example, our Australian oil and gas industry analyst friend who is quite candid about his view of Alaskan leadership and its LNG project.
- Here is our recent and highly relevant review of the Alaska investment climate.
Our Reaction To What The Governor Did
General. Governor Walker assumed office knowing the economic challenges were awesome.
Oil prices ranged at half the level the state operating budget required and that operating budget, in turn, was 90% dependent on Prudhoe Bay oil production. The entire economy of Alaska is over a third dependent on this sole source of income. Annual deficits of $3.5 - $5 billion will deplete the state's available savings within two - three years depending on the level of spending cuts politicians are ready to approve. Still, an almost $10 billion state employee retirement program unfunded liability awaits full funding.
Alaska's oil income flows from a 1/8 royalty share of the oil; a discriminatory, statewide 20 mil oil and gas property tax; one of the highest production (i.e. 'severance') taxes in the free world; and, a corporate income tax.
While the royalty rate was one of the lease terms agreed upon during the famous 1969 Prudhoe Bay lease sale, the bulk of oil taxation was added after the lease holders began making their massive investment in developing the ANS reservoirs and building TAPS. For the dozen years following the lease sale, taxes were increased about a dozen times. At least twice in Alaska's history, higher tax rates were applied retroactively for the sole purpose of clawing into state coffers, more money.
While Alaska got away with its unfair and predatory taxation for a long time, even the great and prolific Prudhoe Bay reserves would dwindle, age and continue need massive reinvestment in order to spawn new production. The trouble is that with the highest oil taxes in the free world, Alaska's political leadership had created the highest per capita taxing authority in America, the highest debt per capita state in the nation characterized by some of the most lavish social programs devised by man. Alaska even has more non-profit organizations per capita than any other state.
In the early 1990s, Dr. Scott Goldsmith (NGP Photo) of the state university's Institute of Social and Economic Research began warning that if Alaska were to begin slowly cutting the growth of spending its economy could arrive at a "soft landing", meaning a sustainable, long term economy.
Common Sense for Alaska, a public interest non-profit organization, sponsored government-spending conferences leading to powerful recommendations for a constitutional amendment limiting government spending increases to an inflation/population formula.
All public officials paid lip service to both Dr. Goldsmith's warnings and Common Sense's recommendations, to no effect. Spending continued to explode.
Alaskan apologists justified their high oil taxes and high spending in this way: "We are a large state with a small population and our cost of living is higher than elsewhere; therefore, it costs more for us to maintain government services."
Problem with that argument is that no matter how much a person, family or government wants to spend more money, one simply can't spend more than one brings in without sacrificing credit worthiness. (Of course, the Federal government has shown that it can spend over $18 trillion more than it takes in, but even its citizens pay for its irresponsibility when, ultimately, inflation devalues the currency) Recently the rating agencies, as we have long predicted, began putting Alaska on notice that its cost of borrowing is likely to increase since its economic risks have now become too large for analysts to ignore.
In addition to the low price era in which Walker finds himself, production has been steadily declining for years at a 5-7% rate.
In the mid 80s, Alaska produced over 2 million barrels per day to feed about a fifth of America's domestic oil needs. The Trans Alaska Pipeline System (TAPS) which transports Alaska North Slope (ANS) oil to tidewater now operates at only about a quarter of its capacity. Nearly three-quarters empty is another way to put it.
Governor's Background. Governor Bill Walker was born, raised and spent most of his life in the state. We believe that many who know him would agree he is a gifted public speaker with charismatic qualities. He knows the state well.
These attributes would benefit one's role as governor.
But being governor of a State dependent on oil investment requires a studied, wise, world view of the opportunities, the competition, the alliances leading to a successful term of office.
As a lawyer, much of his professional background, counter-intuitively, dealt with politics and marketing. He held elective posts in Valdez, site of the major, 1989 oil spill, and served as the general counsel and major marketer of a municipally-owned authority.
The Alaska Gasline Port Authority (AGPA) was designed to promote (i.e. and then finance, build and own) a gas pipeline/LNG export project.
During this time, Walker continually criticized other parties (i.e. like the oil industry) for not cooperating with AGPA's or predecessor LNG project efforts.
An observer might conclude Walker's AGPA was never successful for logical reasons: 1) From the early 80s to the late 90s, the Lower 48 gas price was too low to support any project and the world LNG trade was in its infancy. 2) During the years, before the shale phenomenon, when the Lower 48 needed Alaskan gas, the most economical way to monetize ANS gas was to send it by pipeline directly down to those markets, and not to try to send it via tankers to Asian markets. 3) When the shale revolution produced massive gas supply for North American markets, Asia looked more promising, especially after the Nakashima tragedy in Japan lessened interest in Nuclear power and increased interest in natural gas fired power plants. At that point, the major gas owners rather quickly shifted their sights to Asia and with ample expertise and contacts had no need for a 'middle man' like AGPA to market their gas.
Others may view it differently, but this scenario provides a very understandable backdrop for this governor's 'Alaska-centric' judgment and decision making.
While his AGPA attempts failed to monetize ANS gas, now he is governor and, again, he may be viewing the oil companies as roadblocks when, in fact, their diligent efforts have brought an ANS gas monetization project farther forward than ever before.
We believe it ironic that Walker's zeal to be the man at the helm of an LNG project may, in fact, be clouding his judgment and sabatoging the project.
Insisting on certain state control of and equity in a mega project perverts the private enterprise system to begin with. Then, to be criticizing the investors, refusing to talk about a comprehensive fiscal security package for them and threatening them with a gas reserves tax radiates a hostility sufficient to dampen the ardor of any Alaska investor, current or potential.
In fact, we would be not the least surprised to someday read an announcement from one or more producers to the effect that, "The governor has indicated his desire to own and operate an ANS gas pipeline/LNG system. We respect that desire and, accordingly, are withdrawing from our plan to construct such a project. Instead, we stand ready to sell the state the research and planning material we have developed and will support the governor's efforts in any reasonable way. Our efforts had led Alaska closer than ever before to launching a successful ANS gas monetization project and we were completely on schedule with that effort, but for the governor's demand that we spend additional time and money studying a 48" pipeline alternative. The time honored adage that, 'too many cooks spoil the soup', is as true now as it was in the old days. Rather than face a continuingly critical state administration for what we believe has been our on-time, on-budget, good faith gas monetization effort, we conclude it prudent to transform our project support into support for the governor's state-ownership idea, whatever that turns out to be. Meanwhile, we shall shift the majority of our focus now on investing in expanded throughput of TAPS, upon which the state government and the people of Alaska depend."
Please check back this weekend; much more coming....
|KTVA Video/story by Liz Raines. The Alaska Stand Alone Pipeline (ASAP) was almost ready for construction after more than five years. At a board meeting Wednesday, members of The Alaska Gasline Development Corporation (AGDC) decided to mothball it, saying they didn’t want to run parallel projects. Instead, the agency plans to focus efforts and funding on AKLNG, the larger pipeline project that involves large oil companies like Exxon Mobil, BP and ConocoPhillips.
ADN by Alex DeMarban. ... concerned with public apathy about an effort the state has pursued unsuccessfully for decades -- to tap and sell gigantic volumes of North Slope gas -- the Alaska Gasline Development Corp. has proposed launching a communication campaign to educate the public about Alaska LNG.
(John) Burns, the chair, said there’s a lot of “gas line fatigue” in Alaska, with people confused about the process. Some don't understand that the large sums the state is putting into the project are investments that will one day yield income, he said.
An education campaign could help unify the state’s messages that currently come from multiple sources, including the governor's office, AGDC and agencies working on the effort, officials said.
“The general public has to know what’s going on. It’s Alaska’s pipeline,” said board member Dave Cruz.
Miles Baker, vice president of external affairs and government relations, said the campaign could probably cost “several million dollars” over the next couple years.
(AGDC President Dan) Fauske said that's possible, but a final plan has yet to be presented to the board.
"We really have no clue," he said, referring to the potential cost.
FRIDAY'S EARLY REPORT: MORE TO COME, INCLUDING OUR VIEW OF WHY WE CHARACTERIZE THE GOVERNOR'S RELEASE ON THURSDAY AS A BOMBSHELL REPORT (I.E. NOT MEANT AS AN ENDORSEMENT.) MEANWHILE, WE WANTED YOU TO HAVE THIS MATERIAL AS SOON AS POSSIBLE. PLEASE REVIEW IT AND DEVELOP YOUR OWN REASONED PERSPECTIVE. -DH
Reference: Governor Bill Walker's transmittal letter to Legislators
Reference: Governor Bill Walker's, "Summary Report on the Review of the Alaska LNG Project Process"
We will provide our dear readers with commentary later in the day on Friday.
Here is the copy of an email alert we also issued Thursday on this subject:
- A Governor who has endured a quixotic journey of several decades to force private industry to build a project of his own dreams, and
- Legislative leaders who created a several hundred million dollar state-owned "Alaska Gasline Development Corporation" (AGDC) to deliver North Slope Gas to citizens in case a larger interstate project did not materialize, now run by Walker's appointed board members, and
- Alaska's largest investors, the North Slope Producers, who purchased leases, found oil and gas and have the right to market it while providing a royalty in kind (RIK) or royalty in value (RIV) to the state, and
- Fairbanks citizens and politicians anxious to benefit from a state-financed -- and to this point state managed -- natural gas distribution system concept, enabled by Walker appointed members of a state investment corporation, and
- Politicians from all over the state who are thinking, "How can my constituents and I benefit from any of the horse trading going on", and
- Frightened citizens whose leaders have created a $4-5 billion ANNUAL deficit in the state operating budget which is almost 90% funded by North Slope producers -- at a time when production is declining, world oil prices remain depressed and state spending continues rising.
Regular readers will know that this blog considers the Alaska LNG (AKLNG) project to be the Aesopian tortoise of the LNG project world – not as flashy as some, but plodding towards first gas next decade.
However, that tortoise carries a heavy shell that would be familiar to LNG project proponents in most locations around the world – a Government that wants to maximize its share of something that does not as yet exist – and therefore risks getting a larger share in nothing rather than a reasonable share in something.
Australian readers of this blog will likely be familiar with only one Alaskan Governor – the surprisingly socialist (when it comes to taxing oil companies) Sarah Palin. Her populist instincts live on in the State and even the Russian news service Interfax today points out that AKLNG risks being bogged down by politics (http://interfaxenergy.com/gasdaily/article/17647/alaska-lng-could-be-left-out-in-the-cold).
Alaskan based website Northern Gas Pipelines (http://www.northerngaspipelines.com) today provides an update on the latest Government meddling in AKLNG and asks the reasonable question – “with so many government cooks in the LNG kitchen, really, what could possibly go wrong?”
Dave Harbour, publisher of Northern Gas Pipelines, is a former Chairman of the Regulatory Commission of Alaska and a Commissioner Emeritus of the National Association of Regulatory Utility Commissioners (NARUC). He served as NARUC's official representative to the Interstate Oil & Gas Compact Commission (IOGCC). Harbour is past Chairman of the Alaska Council on Economic Education, Anchorage Downtown Partnership, and the Anchorage Chamber of Commerce. He served as President of the American Bald Eagle Foundation, Common Sense for Alaska and the Alaska Press Club. He is Chairman Emeritus of the Alaska Oil & Gas Congress.
Opinions or viewpoints expressed in this webpage or in our email alerts are completely independent. They are solely those of the publisher and are not intended to reflect the opinion(s) of any affiliated company, person, employer or other organization which or who may, in fact, oppose the views stated herein. -dh
ADN by Pat Forgy.
The North Slope Borough has become fabulously wealthy from taxes on the oil industry and its massive Prudhoe Bay infrastructure. More....
Our Mid-Atlantic Energy Senior Consultant Friend
(Reference this Fuel Fix Story by Collin Eaton)
While Alaska producers are poised to finance and build a gas pipeline/LNG export project, Alaska's new Administration seems to be doing everything possible to delay it into oblivion.
We have commented on these various matters separately over the governor's first year in office; we believe that, this issue cannot be separated from the theme of our consultant friend's article on the left.
As development projects are delayed during this low energy price era, experienced oil industry specialists in many areas -- including gas exploration, production, pipelines, liquefaction and ocean transport -- are being laid off and/or retired.
Our consultant friend has observed that this trend endangers future projects, not because of future oil prices but because of the serious lack of oil and gas specialists needed when demand and higher prices again call for more production -- from highly technical projects.
It is another viewpoint that public and private officials involved in pipeline/LNG projects should bear in mind.
If politicians waste too much time trying too hard to dictate what projects investors should build, how, in what timeframe and with what personnel policies (i.e. as Alaskan politicians tend to do), Alaska's gas pipeline could remain a pipe dream for another, perhaps poorer but wiser, generation to tackle.
-dh (Note: we will immediately correct any factual errors in this or any archived material. Please write us with any additions or corrections. Thank you.)
Wood Mackenzie has estimated that the number of major drilling projects on which the oil industry can make money, given current economics, is down by huge amount (although the numbers are actually a little fuzzy). We have written about this trend several times recently, including our note on diminished North Sea drilling. We do not have access to the complete WM report – their press release is below – but it is still fair make several points about the implications of this trend:
· It will be tough to get to the cost reductions estimated as necessary below, without fudging the numbers. The oil companies already challenge costs in a very disciplined manner for every project, even after it goes FID.
· Given current cash flows, it is probable that a number of projects declared marginally profitable after being put through the cost reduction wringer will get deferred for significant time, or simply mothballed.
· This process will have a cascade effect if it goes on for several years. The longer it goes on, the more the reason for deferral will be lack of qualified
specialists. Prostitution is not world’s oldest profession; the oil industry is. The business lost the bulk of a whole generation through layoffs in 1980s and 1990s. With the layoffs this time around, the talent needed for the next upturn simply will not be there.
· Many of these projects will take multiple years to be developed. The lack of timely response to deal with a supply/demand imbalance will also contribute to greater volatility in the future.
Bottom Line: We have seen this movie before. The monsters involved will be bigger and more convoluted in the current version of the story, but the result will be the same. It will not end well.
Today's Energy Links Are From Larry Persily, Former Federal Gas Pipeline Coordinator
Oil and gas news briefs for Sept. 21, 2015
LNG buyers making progress in push for more flexible contracts
(Platts; Sept. 18) - Calls for increased contract flexibility dominated discussions at the fourth annual LNG Producer-Consumer Conference in Tokyo this week, as industry participants met once again to deliberate emerging trends in the LNG market. The debate advanced some from a year ago, when price indexation had largely taken center stage. With some flexibility now granted in this area, the focus increasingly turned to the still-restrictive terms around LNG delivery schedules and destinations.
Numerous industry observers saw the removal of destination clauses, take-or-pay terms and wider quantity tolerance in contracts as key components that will be necessary to manage the looming supply glut in LNG. "LNG producers must improve on the contract practices of the past. Simply put, producers need to help increase the flexibility of the trade," said Jae-do Moon, South Korea's vice minister for trade, industry and energy.
Jean-Pierre Mateille, Total Gas & Power's vice president for trading, conceded that changes around delivery and schedule terms in contracts were inevitable. "Contracts are becoming shorter.” Most U.S. LNG exports will allow destination flexibility, Mateille said, “We see the traditional link between producer of gas and buyer has been broken up by this new business model.” Satoshi Kusakabe, commissioner of Japan METI's Natural Resources and Energy Agency, said removal of destination clauses would help the market because it would draw more players and increase liquidity and spot trades.
Meanwhile, market uncertainty and lack of new project sanctions has prompted caution of future shortages. "Even at current projections, we need to add about 20 million metric tons of LNG per year to maintain a stable supply demand balance [from 2023 onward]," said Demus King, general manager for offshore resources at Australia's Department of Industry and Science. "To deliver in 2023, FIDs need to be made in the next few years."
Global commodity traders see big opportunities in LNG
(Reuters; Sept. 17) - Mining and trading giant Glencore is mounting a challenge to Trafigura and Vitol to become the top merchant trader of liquefied natural gas as a global market in which sales are largely frozen in decades-long contracts looks ready to thaw. Trafigura recently adopted tactics developed from years of trading oil to become the world's top LNG merchant, investing in logistics and storage, while also providing credit and shouldering risk for buyers.
Glencore, on the other hand, plans to double its global LNG trading team and trade as many as 50 cargoes of the fuel over the next year — almost twice what Trafigura traded in its past fiscal year. LNG could soon surpass iron ore as the world's second-biggest traded commodity, with estimates of the market's worth ranging between $90 billion and $150 billion. "The opportunity for growth in LNG trading is spectacular," said Glencore's global head of LNG, Gordon Waters, who joined the firm in July after 18 years at BP.
Trading companies, which industry sources say have so far accounted for less than 10 percent of overall LNG trade, could help trigger a more liquid Asian LNG market, with exchanges from Singapore to Tokyo launching indices and futures contracts in preparation. Glencore — which has had a limited presence in LNG up to this point — plans to trade in spot or short-term deals over the next year and double the size of its three-trader team based in Singapore, London and Madrid.
First Nation seeks title to island at proposed LNG plant site
(Globe and Mail; Canada; Sept. 18) - The Lax Kw’alaams First Nation is seeking aboriginal title to Lelu Island and Flora Bank, creating a legal obstacle for a Malaysian-led consortium that wants to build a liquefied natural gas export terminal near Prince Rupert, B.C. The aboriginal group will file a notice of civil claim to launch the legal action next week in B.C. Supreme Court, Lax Kw’alaams Mayor Garry Reece said Sept. 18.
Pacific NorthWest LNG, led by Malaysia’s Petronas, is proposing to construct an LNG export terminal on Lelu Island, and also build a suspension bridge and jetty to a dock for Asia-bound tankers. Pacific NorthWest LNG has offered assurances that the design of marine infrastructure will not harm the environment. But the Lax Kw’alaams believe there would be environmental damage because Flora Bank contains juvenile salmon habitat in eelgrass beds next to the island in the Skeena River estuary.
“We want to protect crucial salmon habitat, protect our food security and ensure that governments and industry are obligated to seek our consent,” Reece said. The area is part of the traditional territory of the Allied Tsimshian Tribes of Lax Kw’alaams, and Reece believes that gaining aboriginal title will provide the First Nation with an effective veto over specific aspects of Pacific NorthWest LNG’s proposal. The B.C. government said it respects the right of the Lax Kw’alaams to seek title, while the Prince Rupert Port authority said it is examining the implications of the legal challenge.
Petronas will market ‘package deals’ to sell some of its B.C. LNG
(Platts; Sept. 15) - Pacific NorthWest LNG will look to sell additional volumes of gas from its planned Prince Rupert, B.C., facility to Asian buyers as part of "package deals,” responding to buyer demand, company president Michael Culbert said Sept. 16. “The Chinese, Japanese and Indian markets are seeking diversity [in supply sources] and Petronas is looking at a portfolio of supplying LNG for 20 to 30 years that will be sourced from Canada besides Australia and other global producers," he said.
"A prime advantage of mixing LNG supplies from Canada with other producers will be stability of supply that buyers are demanding," he said on a webcast of the Peters and Co. annual conference in Toronto. Petronas holds 62 percent of the B.C. project that is aiming to start exports in late 2019 or early 2020. Petronas is responsible for marketing the LNG, Culbert said, and already has sold nearly 50 percent of the output under long-term deals with Sinopec, Indian Oil Corp., Japex and Petroleum Brunei.
Culbert did not indicate how much LNG that Petronas plans to sell under the package deals, or if negotiations have already started with Asian buyers. Pacific NorthWest LNG is awaiting final clearance from the Canadian Environmental Assessment Agency before taking a final investment decision to build its LNG facility.
Asian owned-and-operated LNG plant new to the market
(Nikkei Asian Review; Sept. 16) - Companies in East Asia are teaming up to secure cheap, stable supplies of liquefied natural gas. In the process, they are attempting an end-around of the oil giants that dominate the LNG business. One example of how they are trying to do this can be found in Indonesia, where Japanese trading company Mitsubishi and Korea Gas, the world's largest LNG importer, built an LNG plant.
The hope is to eventually ease Big Oil's grip on Asia's LNG market. In August, the first shipment of LNG made its way from the new Donggi Senoro plant to an LNG receiving terminal operated by Pertamina, Indonesia's state-owned oil and gas company. This fall, LNG from the Donggi Senoro plant will be shipped to Korea Gas and Japanese electric utilities, said Toru Kawabata, operations director for the joint venture.
The new plant in Indonesia — at 2 million metric tons annual capacity — is much smaller than the Middle East's typically gigantic production facilities, though it has huge implications for East Asia's LNG market. It is a wholly Asian enterprise in an industry used to Western oil companies taking the lead in building and operating LNG plants — and its output will stay in Asia. Neither Mitsubishi nor Korea Gas has any experience operating an LNG plant, however, and the team has gotten off to a shaky start. After production began, operating errors have caused emergency shutdowns.
Major LNG carrier operator says Australia gas could go to Europe
(Sydney Morning Herald; Sept. 17) - If Asia doesn't want Australia's liquefied natural gas, Europe will take it, said the CEO of one of the world’s largest independent owner and operator of LNG carriers. Australian LNG producers are seeing growth demand in top-consuming East Asia countries, like China, Korea and Japan, dry up as those economies slow down. That's causing some Australian developers whose projects are due to come online to look elsewhere, said Gary Smith, who heads up Golar LNG.
"The only other liquid market that is open to them with the U.S. now closed is Europe," Smith said Sept. 16 at the annual Capital Link Global Commodities Energy & Shipping Forum in New York. "And we've seen it before where cargoes start moving west from Australia instead of east." East Asia nations are not taking a lot of additional supply commitments, with some buyers reselling their cargoes, Smith said. Unless markets in Asia change, Australian LNG is “going to have to go farther to find a home,” he said.
European demand for LNG is constant, since the fuel can be used to replace pipeline gas or used by generators to produce electricity, he said.
U.S. report shows coal losing favor in China
(U.S. Energy Information Administration; Sept. 17) - Economic deceleration, industry restructuring and new energy and environmental policies have slowed China’s growth in coal consumption and are also driving more centralized and cleaner uses of coal. After nearly a decade of rapid growth, coal consumption — which currently supplies two-thirds of China's overall energy use — grew only 1 to 2 percent in 2012 and 2013 and was essentially flat in 2014, according to the U.S. Energy Information Administration.
Total energy consumption in China has slowed as its economic growth has eased and as the composition of its gross domestic product has shifted. In 2013, the service-sector share of GDP surpassed the industry-sector share for the first time in Chinese history. The service-sector share further increased to 48 percent in 2014. Policies to accelerate the development of service industries are likely to sustain the transition away from industry, further weakening coal consumption, the EIA said in its report.
Industry restructuring has reduced China’s energy demand growth from coal-intensive industries such as steel, cement and fertilizer as industry growth slows and processes become more energy efficient. In addition, China's severe air pollution challenges have led to new policies and regulations to restrict coal use in coastal China, to upgrade the nation's coal-fired power generation fleet, and to accelerate the increase of alternative energy technologies.
Idled oil rigs mean less gas production in U.S.
(Bloomberg; Sept. 16) - The retrenchment in drilling for oil in the U.S. is threatening to leave a different market short: natural gas. “The impacts of oil-rig counts extend beyond oil; the outlook for U.S. natural gas is critically dependent on the outcome of this balancing act in U.S. oil rigs,” Anthony Yuen, a strategist at Citigroup in New York, said in a report to clients Sept. 16. “If the oil market remains oversupplied and oil-rig counts fall, the decline in associated gas production would leave the market short of gas.”
Associated gas is the gas that comes out of oil wells along with the crude. Supplies of this byproduct from fields including the Bakken formation in North Dakota and the Eagle Ford in Texas may fall by about 1 billion cubic feet a day next year as drillers idle rigs in response to the collapse in oil prices, Yuen said. The U.S. Energy Information Administration has already forecast that shale gas production will drop in October for the fourth straight month, a record streak of declines.
Crude producers in the Lower 48 states may have to keep the number of working rigs low for a while longer to balance the global oil market, Yuen said. A premature recovery in the rig count may “exacerbate the current oversupplied environment” and weaken prices, he said. While oil prices have been down, natural gas futures have been lower, too, settling at $2.66 per million Btu on the New York Mercantile Exchange Sept. 16, down 41 percent from June 20, 2014.
Floating LNG storage, regasification ships gain in popularity
(Bloomberg; Sept. 15) - At a time when oil and gas producers are writing down assets and canceling projects worldwide, one niche area is booming. Hybrid ships, called floating storage and regasification units, or FSRUs, offer emerging nations from Egypt to Pakistan a cheaper, quicker way to attack power shortages by importing liquefied natural gas. They cost about $300 million to build, half as much as an onshore import terminal, and are up and running as much as six times faster, sometimes within as little as a year, according to FSRU owners Hoegh LNG Holding and Excelerate Energy.
Built at shipyards in South Korea, Hoegh sees as many as 55 such vessels in use within five years, from about 20 now and just one a decade ago. “The main driver is speed,” Sveinung Stohle, Hoegh’s chief executive officer, said by telephone from the company’s Oslo office. “Demand for FSRUs follows a drastic reduction in the cost of LNG. We see that this has caused a very strong increase in requests.”
FSRUs are emerging as the fastest alternative for gas imports as nations imposing limits on carbon dioxide emissions turn to cleaner-burning gas. Competition has cut costs of leasing such vessels by 20 percent to about $120,000 per day from five years ago, said Keith Bainbridge, managing director of industry consultant CS LNG in London. Once the 1,000-foot ships are moored, LNG is transferred from arriving tankers through pipes. The LNG is regasified onboard and typically used at a nearby power plant.
Australia antitrust regulator delays decision on Shell-BG deal
(Wall Street Journal; Sept. 17) – Shell’s $70 billion takeover of BG Group has hit a snag after Australia’s antitrust regulator flagged concerns the deal might squeeze domestic supplies of natural gas and drive up prices. The Australian Competition and Consumer Commission said Sept. 17 it would delay a decision on the deal by about two months toNov. 12, after receiving a welter of submissions from businesses worried Shell would curb local supply in favor of more lucrative sales to Asia through BG’s LNG terminal.
Shell’s proposed acquisition of BG is, in part, a bet that developing countries will move to cleaner-burning gas amid growing pressure to curb emissions. The regulator’s review of the Shell-BG tie-up has become entwined in a separate study of Australia’s East Coast gas market, which Commission Chairman Rod Sims said is one of the few in the world under the shadow of supply uncertainty despite a global gas production boom.
Australia is due to become the world’s biggest producer of liquefied natural gas within two years, as several multibillion-dollar export terminals that began construction when oil and gas prices ran hot start shipping cargoes of LNG to Asia. While that investment holds out the prospect of sharply higher revenues for state and federal governments in Australia, it has also spooked local businesses, which fear paying more for energy as fuel that would have previously fed the domestic market gets shipped overseas.
Gas association launches pro-pipeline public awareness campaign
(Houston Chronicle; Sept. 14) – Increased domestic production has spurred a need for new pipelines to carry natural gas across the country, but also a wariness by some Americans worried about pipelines snaking through the ground. The Interstate Natural Gas Association of America hopes to combat some of the skepticism by rolling out a new ready-for-social-media campaign with videos, graphics and a website emphasizing that pipelines are a vital energy link for the nation.
“If you think about citizens who live near pipelines or in communities where pipelines are proposed to be constructed, they probably don’t know much about natural gas or natural gas pipelines and the tremendous contributions (they) make to overall quality of life,” said Don Santa, CEO of the gas association. With the campaign, INGAA argues that pipelines are the safest method for transporting gas. In addition, gas is better for the environment than the coal it often displaces for power generation.
Cathy Landry, an INGAA spokeswoman, said the group is trying to reach “everyday Americans,” including landowners and others in communities affected by pipeline construction — people who may not realize that natural gas is used to generate electricity as well as fuel furnaces. The campaign is being launched as opponents to oil and gas development have focused more attention on pipelines.
Analyst forecasts another record year for U.S. gas production
(Platts; Sept. 18) - Record levels for production, power burn and storage injection will help make 2015 another record year for natural gas, Jeff Moore, senior energy analyst at Platts unit Bentek Energy, told attendees Sept. 18 at the 38th annual Coal Marketing Days conference in Pittsburgh. Moore said that while coal plant retirements have helped fuel an increase in natural gas generation, the real driver behind in the rise in demand is the commodity's continued low price.
With the Henry Hub price staying below $3 per million Btu, natural gas generation is deployed ahead of coal, Moore said. The only time gas demand for power generation was near these levels was in 2012, the year the Henry Hub price dipped to about $2 in May, he said. Bentek sees the price rounding out in 2015 at an average of $2.68 and increasing to $2.84 in 2016. From 2017 to 2020, Bentek expects the price to average $3.38, $3.85, $4.23 and $4.42, respectively.
Efficiencies in horizontal drilling and a drastic increase in the initial production rate from wells in the Marcellus and Utica shales will push gas production to a new high in 2015, Moore said. Total U.S. marketed gas production is averaging 72 billion to 72.5 billion cubic feet per day this year but will ramp up to near 74 bcf by the end of 2015, Moore said. Gas inventory levels are predicted at an all-time high at the end of the year, but the volumes depend on winter weather.
U.S. oil production finally starts trending lower
(EnergyWire; Sept. 17) – U.S. crude oil production is finally starting to decline, according to statistics and experts. After months of production increases — even in the midst of falling oil prices — total output volumes have been trending downward as production growth in some areas is being outpaced by declines in major shale oil regions. The trend appears to be holding.
Earlier, it had been difficult to tell whether output declines represented a steady trend or the occasional variance seen month to month. Output continues to expand in the Permian Basin of west Texas and southeastern New Mexico and in federal waters in the Gulf of Mexico. But declines in the North Dakota Bakken Shale, in south Texas' Eagle Ford Shale and from other fields appear to be outpacing growth elsewhere.
"There is evidence now that production from the shale plays is declining, not at a rapid rate, but I just recently saw some data for the Eagle Ford and the Bakken which do show production declines over the last couple of weeks," said Bernard Weinstein, director at the Maguire Energy Institute at Southern Methodist University. The U.S. Energy Information Administration sees a gradual decline continuing for the next year, with U.S. oil production forecast to reach 8.63 million barrels a day in August 2016, a drop of nearly 1 million barrels per day from the April 2015 high-water mark.
Low oil prices may cut into production as companies run out of cash
(Bloomberg; Sept. 17) - As much as 400,000 barrels a day of oil production is at risk as U.S. shale companies like Samson Resources run out of money and are forced to slow drilling. Total debt for half of the companies in a Bloomberg index of more than 60 producers has risen to a level that represents 40 percent of their enterprise value. It’s a sign of distress that shows equity values falling in the face of oil’s crash, said Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors.
The companies facing high debt loads, which include Encana and Chesapeake Energy, produced 1.1 million barrels a day in the second quarter of this year, according to data compiled by Bloomberg. If more companies file for bankruptcy as Samson did Sept. 16, or embrace the kinds of draconian cuts needed to survive, output could fall by 200,000 to 400,000 barrels, Thummel said. A loss of that much crude would be the steepest U.S. decline since 1989 — about the same as Oklahoma, the sixth-largest producing state.
“We are going to see a major response because these financially challenged companies won’t be able to produce as much as they did in the past,” he said. As companies run short on cash from low oil prices, they may be forced to idle drilling rigs, file bankruptcy or seek more expensive financing and sell assets. In the past year, U.S. oil producers used 83 percent of their operating cash flow to pay for debt service, according to the U.S. Energy Information Administration. A year earlier, it was less than 60 percent.
Yes, Low Oil Prices Also Affect Service Industries and Their Thousands of Employees and Sub Contractors!
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.
...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.
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.”
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.
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....
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."
Calgary Herald, by Geoffrey Morgan.Suncor Energy Inc.’s Steve Williams blasted the “stupidity” of pipeline politics in the U.S. and Canada....
|Our 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
|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:
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.
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 got. No 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."
Then, bookmark our April 17 commentary. -dh
Comment: Critical reading of today's events below demonstrates some good news in the form of COP's new drilling at its CD5 property on the Alaska North Slope (ANS). Then, we note from our Australian and Ohio analysts the increased difficulty faced by an ANS gas transportation project in a low energy price, high production environment.
ALASKA DECISION MAKERS: Does this not mean Alaska must become even more competitive to market its natural resources, not less? See this week's August 18 editorial, "Outrageous Decisions"; here are some reviews. -dh
Wilderness Society vs. Institute for Energy Research
But Brune apparently was trying to speak for Alaska's Native people. He also suggested that no new oil and gas areas should be developed because climate change (in his opinion) required all new energy to come from alternative energy sources (i.e. wind, solar, etc., we presume). This is more evidence that, indeed, to enviro-activists the 'end justifies the means,' and intellectual honesty has no role in their strident advocacy. -dh
Today ConocoPhillips (NYSE:COP) announced that development drilling has begun at its CD5 drill site on the North Slope. CD5 is the first oil development within the boundaries of the National Petroleum Reserve-Alaska (NPR-A), and first oil is expected in the fourth quarter of 2015. Click here to view the full news release.
THE ENERGY ANALYSTS SPEAK...AND, YOU READ IT HERE FIRST!
Today we bring you two of our favorite private analysts, whose names shall not be revealed.
One writes from the Mid Atlantic interior state area while the other writes us from far across the Pacific.
Today's Aussie O & G Observer writes:
- ...the Alaska LNG Project is....(Read more)
- The oil market has been smashed again overnight.... (Read more)
Our Ohio Observer says:
- The highwater mark for rigs operating in the Bakken during the past two years was October 2014 (see below) at 194. Since that time, the number of rigs has fallen 60%. Yet production is almost at record monthly levels, and (Read more)
AJOC by Elwood Brehmer.
All Alaska Gasline Development Corp. contracts would be open to the public under a draft regulation proposed Aug. 13 at its board of directors meeting.
A contract submitted for board approval would be posted on the Alaska Gasline Development Corp., or AGDC, website at least 10 days prior to the meeting at which it is to be discussed, the draft regulations state.
Overall, the five pages of proposals limit what types of confidentiality agreements the corporation and its directors can enter into.
“If the regulations are adopted in this form it is simply going to be fairly open going forward,” AGDC attorney Ken Vassar said. “We’re not going to enter into any contracts that by their terms are themselves confidential. That’s just not an agreement that would be available to u
Today's Consumer Energy Alliance links to issues important to NGP readers:
Argus Media: States urge dismissal of Oregon LCFS suit
The federal court lawsuit brought by the American Fuel and Petrochemical Manufacturers Association (AFPM), American Trucking Association and Consumer Energy Alliance echoes arguments they made against the California LCFS. The judge in that case said that the AFPM lawsuit could not go any further because of a 2013 decision by the US Ninth Circuit Court of Appeals that said the California program did not explicitly discriminate against out-of-state products in violation of the US Constitution.
Alaska Dispatch News: With Obama's visit less than two weeks away, details trickle out
Public officials and residents alike, from Anchorage to the 400-person village of Kivalina on the northwest coast, are watching and waiting for more details about President Barack Obama’s upcoming visit to Alaska.
Fox News: Clinton hit for breaking with Obama on Arctic drilling, staying mum on Keystone
Hillary Clinton is taking heat from Republicans for breaking with the Obama administration on Arctic drilling while continuing to hedge on her position on the Keystone XL Pipeline.
National Post: Kelly McParland: Obama’s Arctic drilling rationale doesn’t even convince supporters
Barack Obama is a curious individual. The U.S. president has delayed making a ruling on Canada’s Keystone XL oil pipeline for seven years, seeking to burnish his environmental credentials and please supporters in the green movement. The refusal upset Ottawa no end, but the White House deemed Canada’s vexation less crucial than making a point about the importance of battling climate change.
Town Hall: Poll: Americans Think Obama’s Climate Change Plan Will Increase Energy Costs – They’re Right
The Obama administration’s plan to cut carbon dioxide emissions by nearly 30 percent from 2005 levels by 2030 has a majority of Americans feeling their wallets since electrical costs are projected to go up. The increase specifically places fixed-income seniors in the cross hairs. Moreover, the projected job losses are will hit rural America the worst.
Real Clear Energy: One Loser in Obama's Climate Plan? Existing Nuclear
Right now, the biggest source of clean energy in the United States is nuclear power. The country's 99 commercial reactors provide 20 percent of our electricity, all without emitting carbon dioxide. Compare that with wind at 4.9 percent or solar at 0.6 percent.
Heartland Institute: House Cuts EPA Budget, Would Block Clean Power Plan
The House Appropriations committee cut funding for the Environmental Protection Agency (EPA) by 9 percent, or $718 million, and blocked key Obama administration climate rules when they approved a $30.17 billion Interior and Environment spending bill.
Fuel Fix: Commentary: Fossil Fuels are the Solution, Not the Problem
The George C. Marshall Institute has recently released a study on fossil fuels and the economic well-being. It describes why energy is an essential input to economic activity. Because fossil fuels are such a large part of the world’s energy supply, they play a dominant role in enabling people everywhere to enjoy a higher standard of living and greater personal freedom.
Forbes: Pennsylvania and Truth in the Incidence of a State Severance Tax
Pennsylvania policymakers are nearing a two-month budget stalemate between Governor Tom Wolf and state GOP leadership, at least part of which can be attributed to their divergent views on the implications of a proposed severance tax on the production of unconventional natural gas.
Economic Times: Oil prices hit 6-1/2-year low as US crude supplies rise
Oil prices in New York sagged to a new six and a half year low Wednesday following data showing an increase in US petroleum stocks. US benchmark West Texas Intermediate for delivery in September dropped $1.82 to $40.80 a barrel on the New York Mercantile Exchange. The contract fell as low as $40.46 a barrel earlier in the session.
New York Times: Oil Companies Sit on Hands at Auction for Leases
With oil prices collapsing and companies in retrenchment, a federal auction in the Gulf of Mexico on Wednesday attracted the lowest interest from producers since 1986. It was the clearest sign yet that the fortunes of oil companies are skidding so fast that they now need to cut back on plans for production well into the future.
San Antonio Express-News: Low crude prices affect offshore drilling auction
Oil and gas companies are set to pay $22.7 million for drilling rights in the Gulf of Mexico following a lackluster government auction Wednesday that reflected low crude prices. With just five companies participating and only 33 leases sold, the turnout marked the smallest western Gulf of Mexico lease sale since area-wide auctions began in 1983.
Fuel Fix: Oil and gas cos. among most profitable per employee, analysis finds
Oil and gas companies were among the best at squeezing the most revenue from a small number of employees last year, according to data collected by a business research website. Researchers from FindTheCompany calculated profits per employee among companies on the S&P 500 in 2014. Among the top 25 companies ranked according to that metric, 15 were oil and gas exploration and production companies.
UPI: Wood Mackenzie: Mexico oil swaps only slight U.S. move
Approval for oil swaps with Mexico opens the spigot for U.S. crude oil, but might not be the export indication supporters are hoping for, an industry analyst said. The U.S. Commerce Department last week granted a request from Mexican energy company Petroleos Mexicanos, known also as Pemex, to swap as much as 100,000 barrels of U.S. crude oil per day for Mexican refining. The deal forbids the re-export to other nations.
Houston Chronicle: Senators ask SEC to review oil companies' disclosure on offshore risk
A dozen senators are asking the Securities and Exchange Commission to probe whether oil and gas companies are fully disclosing the risks associated with their offshore operations.
Alaska Journal of Commerce: Paper: Cooperate rather than lead on AK LNG
A leading U.S. economist says a large natural gas pipeline project is vital to the state’s economic future and that the state should cooperate with experienced large companies in developing the project rather than attempting a plan for the state to lead the project.
Orange County Register: Obama's Clean Power Plan is bad news for California
The White House recently released its Clean Power Plan, which aims to reduce the nation’s carbon dioxide emissions by 32 percent by 2030. Almost immediately, California Gov. Jerry Brown praised the plan, claimed it should be the model for international agreements and touted California’s own statewide plans. But California’s carbon control program should be a warning to the rest of the country, not an endorsement of the president’s plan.
The Argus Leader: My Voice: Getting Washington working again for Americans
When Republicans campaigned for the Senate majority in 2014, we made a simple, yet important pledge to the American people: If you elect Republicans to the majority, we will get the Senate, which has been dysfunctional for years, working again. That was not a half-hearted campaign slogan; it was a commitment on which we intended to deliver.
The City Wire: Arkansas severance tax revenue set fiscal-year record, pace falls in new year
Arkansas severance tax collections tumbled nearly 59% in the first month of the state’s fiscal year 2016 as Fayetteville Shale drillers were unable to sustain production levels due to continued weak natural gas prices, spending cuts and fewer operating rigs.
Lincoln Journal Star: Local View: Five seasons Nebraska should reject the EPA’s mandate
The EPA’s “Clean Power Plan” would drastically increase energy costs for all Nebraskans without achieving its stated goal of combating climate change.
Milwaukee Journal Sentinel: Enbridge claim hard to swallow
None of us should be surprised when fossil fuel company executives tell a whopper or two in order to promote their interests, protect their massive government subsidies or avoid regulation of the deadly carbon pollution they freely loose upon Earth's increasingly damaged atmosphere.
Chicago Tribune: Colorado already put methane caps on drillers, and it worked
For an idea of how the U.S. government's proposed methane rules will affect drillers, look no further than Colorado. The state became a test case for similar controls last year when a coalition of energy companies and environmental groups agreed on measures to cut the pollution. In a bid to address smog, regulators there adopted the nation's first requirements for oil and natural gas companies to find and fix methane leaks.
Wheeling Intelligencer: W. Va Leaders Bash Clean Power Plan
For better or for worse, depending on one's perspective, President Barack Obama's Clean Power Plan will significantly change America by the year 2030 - if its goal of cutting 32 percent of CO2 emissions from electricity plants becomes reality.
Andover Townsman: Natural gas pipeline could add $950K to tax coffers
Andover could rake in nearly $1 million in new property tax revenue if a plan by energy giant Kinder Morgan to build a high-pressure natural gas line through town ever comes to fruition. Kinder Morgan officials said last week that Andover would get $950,000 in tax revenue while Methuen would earn $700,000 for being hosts to a portion of the gas pipeline. Dracut, meanwhile, could earn more than $2 million for hosting some of the key infrastructure for the pipeline system.
Observer #2 (Ohio). The highwater mark for rigs operating in the Bakken during the past two years was October 2014 (see below) at 194. Since that time, the number of rigs has fallen 60%. Yet production is almost at record monthly levels, and has increased in the past two months. Part of this has to do with the number of uncompleted wells dropping by 77, leaving 848 still in the inventory of uncompleted wells. This volume can apparently be maintained for some time. According to the monthly report from the North Dakota DMR,
At the end of June there were an estimated 848 wells waiting on completion services, 60 less than at the end of May.
The current rig count plus NC well inventory is sufficient to maintain 1.2 million barrels of oil per day for 24 months
Bottom Line: If this carries over to other oil shales, it is going to be difficult to see any drop in domestic crude oil production in coming months.
Observer #1 (Australia) The oil market has been smashed again overnight (more below). Current sentiments appear to be very bearish, with every piece of bad news being the signal for a sell-off.
A quote from Tudor Pickering Holt's daily note to clients yesterday is set out below. To my mind this provides a clue as to the source of much of this bear-ishness:
"The snapback in stocks / commodities coming out of the 2008/2009 financial crisis spoiled us…it’s usually not that easy exiting a down cycle."
This to me says that the market is going through the "five phases" of grief after last year's oil price crash - and we are now only at the second phase: anger that the re-bound has not yet come (and is not in sight). If this cod-psychology is correct, then we have still three phases to go....
Brent closed down more than 3% at US$47.00, whilst WTI was even harder hit, closing down 4.3% at US$40.55. The twelve month forward price is now worse than it was during the 2008/09 GFC induced oil price fall.
The numbers du jour which induced this fall was data from the EIA's weekly report, which indicated that US crude inventories increased by 2.6 mmbbls (although net product inventories - gasoline and distillate - fell by 2.1 mmbbls). The market consensus figure earlier in the week had not anticipated the extent of the build. The EIA also reported that US daily imports had increased by ~0.5 mmbopd - implying that the US is being used as the global storage site of last resort.
The Henry Hub natural gas price closed down 1c at US$2.71.
Regular followers will recall that this blog considers that the Alaska LNG project is the tortoise of the LNG world - well placed to beat some of the flashier hares. However, Alaskan politics is currently bouncing a few rocks off the shell of this plodder. Readers around the world will recall that Alaskan Governors can often be colourful characters - looking no further than one of the favoured running mates of The Donald, one Ms Sarah Palin.
Not wanting to be beaten by Ms Palin's appetite for socialist oil industry taxes, the latest Governor (Bill Walker) has introduced a concept worthy of Hugo Chavez: taxing gas resources in the ground (a "reserves tax") at the same time as he has signaled he would like the State to takeover 51% of the BP/Exxon/Conoco AKLNG project.
As this is the USA, I expect reason to prevail eventually - but this shows that LNG projects everywhere are subject to politicians mistaking fragile eggs for golden gooses.
Governments and fracking
Victoria's Auditor General released a report yesterday concluding that the State was not as well placed as it should be to manage issues associated with on-shore oil & gas exploration. This has led the Greens to issue a clarion call for the ban of fracking for the period of "forever" (rather than the usual mealy-mouthed five year moratorium). The Farmer's Federation wants more "science". Clearly more than a million safely fracked wells don't provide a statistically valid sample size......
Company news - Armour Energy Ltd (AJQ)
Micro-cap AJQ has announced today that it has signed a non-binding deal with large US private equity firm, American Energy Partners (AEP) under which the latter may farm-into AJQ's Northern Territory acreage.
AEP was founded a few years ago by the colourful ex-CEO of Chesapeake Energy (the second largest US gas producer), Aubrey McClendon. This is the first deal that it (or Chesapeake, to my knowledge) has done outside the USA - the well costs, etc, will not be familiar!
If the deal is turned into a binding one, it will see AJQ be 25% free-carried through a US$100M program, and receive US$11M cash up-front as well.
AEP's founding investor was another US private equity firm, Energy & Minerals Group (founded by ex-Exxon MD Lee Raymond's son) - who themselves recently entered the Northern Territory through a farm-in with private Australian company, Pangaea Resources.
Company news - A J Lucas Ltd (AJL)
AJL has a 40% stake in the UK's best known shale gas exploration company, Cuadrilla Resources, who were recently awarded further exploration licences in on-shore England.
Company news - Beach Energy Ltd (BPT)
BPT today announced that it had appointed an acting-CEO - Neil Gibbons - as MD Rob Cole was absent for family reasons.
Company news - Santos Ltd (STO)
Tomorrow STO will announce its half-yearly results. Its full year results in February included a A$1.6B write-down - but using oil price assumptions that are significantly higher than the current forward strip - or indeed than the bearish sentiments on price that came from Woodside's results briefing earlier this week.
STO will have to walk a narrow line between not being seen as being over-optimistic on oil prices versus not wanting to precipitate the equity raising which its leadership has nailed its credibility to not doing.
Quote of the day
Aubrey McClendon's robust views on the fracking debate:
"We frack all the time. What’s the big deal? Where is the mushroom cloud? Where are the dogs with one leg?”
Gas/LNG links courtesy of Larry Persily, Kenai Peninsula Borough:
Oil and gas news briefs for Aug. 20, 2015
Report says U.S. LNG must be price competitive to succeed
RBN Energy; Aug. 17) - The U.S. over the next three to five years will become a top exporter of LNG, and may emerge as the world’s leading exporter by the mid-2020s. The 12 liquefaction trains now under construction at five sites in the Lower 48 states together will have the capacity to export up to 54 million metric tons per annum, about 7 billion cubic feet of gas a day. How much more the U.S. LNG export potential can grow is covered in a report released this week by energy analytics firm RBN Energy.
The report, “LNG is a Battlefield — The Prospects for U.S. Success in Overseas Markets,” said that despite gas becoming the “hydrocarbon of choice for power generation, heating and many other uses across much of the global energy market … LNG must not be cost-prohibitive.” And until LNG demand grows as expected over the long term, the short-term view looks week. “A lull in demand growth — coupled with new liquefaction capacity — has bloated LNG supplies and slashed prices in the past year.”
Even with low oil prices, which have dropped the oil-linked price charged for LNG under traditional long-term supply contracts, “the U.S. should remain a cost-competitive supplier to international markets,” the report said. A lot will come down to price, it said. “Returns on investment in U.S. LNG export infrastructure as well as the extent of future expansion depend on price competitiveness in international markets.”
Buyers’ market pushes Australia LNG developer to focus on costs
(Reuters; Aug. 19) – Australia’s largest independent oil and gas producer Woodside Petroleum said it has stepped up marketing for its proposed Browse floating liquefied natural gas project, but conceded it is facing a buyers' market against a backdrop of weak oil prices. “The project will need to deliver an acceptable return at the current expectations of oil pricing, meaning it needs to break even at the sorts of oil prices we’re seeing in the marketplace today,” CEO Peter Coleman said.
Despite some analysts expecting a delay, the company is still targeting a final investment decision on Browse in the second half of 2016, having moved into the front-end engineering and design phase this year. Woodside has been able to cut cost estimates by 20 to 30 percent for the subsea and pipeline pieces of the long-delayed project off Western Australia, which analysts previously estimated at $45 billion when it was planned with a land-based liquefaction plant.
The partners are now focused on driving down costs so Browse can be profitable even if oil fails to rebound, and will be marketing the gas aggressively this year. One of those partners, Shell, whose floating LNG technology is the template for Browse, recently said it was far from certain the partners would approve the project.
Gazprom faces serious challenges, including all-time low production
(Agence France Presse; Aug. 16) - Facing a cold shoulder from Europe and increased competition at home, Gazprom has struggled to assert dominance on the global energy market, prompting speculation the natural gas giant could have no choice but to splinter. With the Russian economy slipping into recession on the back of lower oil prices and Western sanctions over Ukraine, the economy ministry has predicted Gazprom would produce 14.6 trillion cubic feet of gas this year, an all-time low for the company.
Gazprom's market capitalization has crashed in recent years. Before the 2008 global financial crisis, the company was worth over $300 billion. Its value now hangs around $50 billion, trailing far behind other major energy companies. "Gazprom is confronted with the greatest challenge in its history," said Chris Weafer, a partner at the Macro Advisory consultancy firm. "What remains to be seen is whether Gazprom becomes an appendage of the foreign ministry or evolves into a global energy company."
Gazprom is grappling with a series of issues, including its recent loss of the Ukrainian market, Europe's energy diversification and increased competition at home. And without U.S. technology blocked by sanctions, experts fear that Russia will not be able to exploit its Far East resources that had been destined for LNG exports. "This is bad news for Russia because the production of LNG is a strategic objective in the region," said Valery Nesterov, an analyst at Sberbank Investment. Some analysts have said Gazprom could benefit from dividing into smaller entities that would be more efficient and transparent.
Gas supply a question for Canada’s East Coast LNG export projects
(Globe and Mail; Canada; Aug. 17) - Two proposed liquefied natural gas projects on the Nova Scotia coast have received approval from Canada’s National Energy Board to export LNG, but they are counting on U.S. producers to supply much of the gas. In that case, they likely need new pipeline capacity to move that gas into New England to provide the supply to underpin their ambitious plans. Pieridae Energy and Bear Head LNG each received Canadian approval of their gas export license late last week.
The two projects are in addition to two others proposed for Nova Scotia and New Brunswick, all of which count on Canadian and U.S. gas making it north to the proposed liquefaction plants. “The big questions are: Where is the gas going to come from, and how are you going to get it to an LNG facility,” Fred Bergman, senior policy analyst with the Atlantic Provinces Economic Council, said in an interview.
Nova Scotia’s offshore fields have supplied gas to Canada’s Maritimes provinces and the U.S. Northeast for years, but will begin a steep decline later this decade unless companies develop new gas reserves. Another option for the LNG plants is Spectra Energy’s plan to build a new gas pipeline from the prolific Marcellus Shale field in Pennsylvania to New England, where it can be moved into Nova Scotia. But that project has run into stiff opposition in Massachusetts.
Oman struggles with growing domestic demand vs. LNG exports
(Platts; Aug. 18) - Over the past two years, Oman has quietly expanded the number of countries to which it exports LNG to well beyond those with which it has long-term supply contracts. In a state that needs increasing volumes of gas to fuel its oil and heavy industrial sectors, this raises far-reaching questions about energy strategy and allocation of gas resources to exports vs. domestic needs.
Oman’s government two decades ago saw LNG exports as an important means of diversifying the economy and moving state revenues away from a heavy dependence on oil exports. A total of 10.4 million metric tons per year of LNG production and export capacity was developed, with plants commissioned in 2000 and 2005. Oman signed long-term supply contracts with Japanese, South Korean and Spanish buyers, which in some cases were also the project shareholders.
Oman planned to negotiate additional contracts with new customers, predominantly in Asia. However, industrial expansion and rampant population growth in Oman, as elsewhere in the Arabian Peninsula, meant that securing domestic gas supply quickly trumped exports as a government priority, leaving the LNG plants significantly underutilized. In 2011, senior government officials suggested that at least one of the plants might be decommissioned once the long-term supply contracts expire.
Top LNG carrier owners join up to market short-term charters
(Reuters; Aug. 18) - Three of the world’s top liquefied natural gas carrier owners have decided to market 14 vessels jointly on a spot-charter basis, part of a new pooling arrangement aimed at cutting operating costs in a depressed market. The pool, consisting of eight modern vessels from Norwegian shipper Golar LNG and three each from Gaslog, headquartered in Monaco, and Dynagas, based in Greece, will commence chartering operations in September, a statement from Gaslog said Aug. 18.
A glut of newly built LNG vessels emerging from shipyards in Asia has been one factor driving down daily charter rates to around $30,000 per day, compared with $130,000 two years ago. "The LNG Carrier Pool allows the participating owners to optimize the operation of the pool vessels through improved scheduling ability, cost efficiencies and common marketing," the statement said. The vessels will seek employment exclusively for charters of 12 months or less.
The move reflects a growing LNG market shift toward short-term trading of cargoes as prices come under pressure and new production from Australia and the United States is expected to add to oversupply. "The real driver primarily is the fact that we are seeing the short-term shipping market growing substantially. In the year to date there have been 97 short-term vessel fixtures versus around 78 in 2014," said Gaslog CEO Paul Wogan. "It's becoming a much more important piece of the (LNG) shipping market.”
LNG spot market in Asia back up to $8
(Platts; Aug. 18) - The Platts LNG Japan-Korea Marker for September deliveries averaged $8.007 per million Btu July 16 – Aug. 14, up 8.3 percent from August, the highest month-on-month gain so far this year, on renewed buying interest and waning availability of spot cargoes in Asia. It was the highest monthly average price since February, when it was $9.911. However, it’s the seventh consecutive month that prices have hung around $7 to $8 since falling from the $9-to-$10 level in January-February.
With northeast Asian end-user demand still tepid and Indian importers reluctant to pay more than $8, the market appeared to have hit a ceiling. Even with the slight boost to $8, year-on-year the marker for September deliveries was down 25.2 percent compared with the average price a year ago at $10.702.
B.C. communities want share of energy project revenues
(Globe and Mail; Canada; Aug. 17) - The indirect cost of workers commuting to energy-sector jobs has prompted 21 local governments in Northwest B.C. to band together and press the province for a greater share of project revenues. Representatives met in Terrace, B.C., on Aug. 15 to formalize the Resource Benefits Alliance. Stacey Tyers, the group’s chairwoman, said workers used to move their families into northwestern B.C. towns for new projects but now most people fly in and out for a job.
“[Workers] use our services, they impact our social systems while they’re here. They use our hospitals … but there’s no contribution to the community in that regard,” said Tyers, who is also chairwoman of the Regional District of Kitimat-Stikine. She said the “unprecedented” agreement between communities empowers them to work on their shared goal of funneling provincial cash from energy projects back to the communities.
The alliance wants a commitment based on a percentage of project profits, and they’ve given themselves three months to get the province to start negotiations. The alliance calculated a 3 percent revenue share would produce $1 billion to cover infrastructure, mitigate social impacts and develop a legacy fund. The communities have amassed an infrastructure deficit of $500 million, Tyers said, as workers stretch capacity to the limit for roads, sewers and water but take their wages back to their home communities.
B.C. LNG hopeful starts site evaluation work
(North Coast Review; BC; Aug. 18) – Chinese-owned Nexen Energy has taken another step in the early days of its proposed liquefied natural gas export terminal on Digby Island, in front of Prince Rupert, B.C., with its provincial application to begin evaluating the site for potential development. The Aurora LNG project applied Aug. 5 to the B.C. Ministry of Forests, Lands and Natural Resources for an investigative-use license for geotechnical and geophysical studies.
If approved, the first phase of work would occur before the end of September, with the second phase to continue through the end of the year. Nexen would set up a temporary staging area for the work, transporting crews and equipment to the site by water taxi, boat, barge or helicopter.
The project has been estimated at about $20 billion to build a plant with capacity of 10 million to 12 million metric tons per year. Nexen has talked of making an investment decision on the project in 2017. The company has started its application process with the B.C. environmental assessment office. In addition to Nexen holding a 60 percent stake, two Japanese companies hold 40 percent of Aurora LNG. The proposal is one of almost 20 LNG hopefuls looking at supplying B.C. gas to overseas markets.
Oregon community debates LNG project workforce housing camp
(The World; Coos Bay, OR; Aug. 17) – The North Bend (Ore.) planning commission has extended the public comment period on Jordan Cove LNG's workforce housing camp application an additional 10 days. Following the commission’s contentious hearing July 20 on the conditional-use permit for the housing camp, city staff received an abnormally large amount of written testimony. They weren't able to get it all online until late Aug. 14, and the commission unanimously agreed Aug. 17 to keep the record open until Aug. 27.
After that deadline, Jordan Cove will have until Sept. 3 for its rebuttal. The commission will meet Sept. 21 to issue a decision, which could be appealed to the North Bend City Council. Meanwhile, the community debate continues. Boost Southwest Oregon members turned out Aug. 17 to support the project. “This area was built on industry, not on tourism. And I love tourism, it's really great if we can survive on that, but it's industry that builds this city, so I'd just like to see more of it,” said Bruce Payne, of Coos Bay.
The anti-LNG crowd also showed up, ready to make their case against the housing camp for the proposed liquefied natural gas plant and export terminal. Simpson Heights resident Ron Wiggins questioned the city sewer system’s ability to take on the camp with almost 1,900 workers.
Santos on target for September start-up of Australia LNG plant
(Sydney Morning Herald; Aug. 18) - Santos has marked a major milestone at its $18.5 billion liquefied natural gas project in Queensland, Australia, that firms up its start-up target for around the end of September, but its shares softened further as the market remained preoccupied by funding concerns and the weak oil price. Santos reported that it had introduced coal-seam gas into the first LNG production unit at its GLNG project on Curtis Island in Gladstone, signaling the huge project is within weeks of start-up.
It will now move to start up the pre-treatment units for the gas, then chill down the liquefaction units to start making LNG. Santos CEO David Knox said the upstream coal-seam gas fields are now "fully operational," while the plant is the final stages of commissioning. Construction at the flagship project has been underway for the past 4½ years. At full production, the plant will be capable of making 7.8 million metric tons of LNG per year. Partners include Malaysia’s Petronas, Korea Gas and France’s Total.
Israel reaches deal for development of offshore gas field
(Reuters; Aug. 16) - Israel's Cabinet Aug. 16 approved a deal with a U.S.-Israeli consortium that would move forward development of the huge Leviathan offshore gas field. The controversial deal reached late last week, which Prime Minister Benjamin Netanyahu believes will bring Israel several billion dollars in the coming years from development of Leviathan and two smaller fields, still needs parliamentary approval.
The deal will allow Texas-based Noble Energy and Israel's Delek Group to keep ownership of the largest offshore field, Leviathan, with an estimated 22 trillion cubic feet of gas. In return for retaining their stakes in Leviathan, the two companies are required to sell off other assets, including stakes in another large deposit called Tamar. Critics of the plan said the government gave into most of the companies' demands and left Noble and Delek with too much power by controlling most of Israel's gas reserves.
Israel, which has gone from an energy-dependent country to a potential gas exporter, currently receives its gas for electricity generation from Tamar, which began production in 2013. Leviathan is slated to begin production in 2018 or 2019 and expected to supply billions of dollars of gas to Egypt and Jordan in addition to supplying Israel. As part of the deal, the companies agreed to invest $1.5 billion in the next two years toward developing Leviathan, and also agreed to lower domestic gas prices for several years.
U.K. to open areas for fracking; opponents vow ‘hundreds of battles’
(The Guardian; UK; Aug. 18) - Large areas of Yorkshire, the northwest and the east Midlands are to be opened up to fracking after the British government announced it will offer a fresh round of licenses for oil and gas exploration, covering 1,040 square miles. Areas near Leeds, Sheffield, Lincoln and Nottingham are to be offered to companies in an expansion plan that green groups predicted would trigger “hundreds of battles” over the future of the countryside.
Ineos, the Anglo-Swiss chemicals group that wants to lead the U.K.’s shale gas industry, was awarded three licenses and said the latest ones could pave the way for gas to be pumped by 2020. The applications are subject to approval by local councils, which will have 16 weeks to decide. The government promised last week to step in if councils fail to keep to the deadline.
The government’s promise to fast-track shale gas in the U.K. comes on the back of strong opposition by environmental groups and a decision by the Lancashire county council to reject an application by exploration firm Cuadrilla on the grounds of visual impact and noise. Both Scotland and Wales previously imposed moratoriums on fracking for shale gas.
EIA lowers its U.S. oil forecast to $49 this year, $54 in 2016
(U.S. Energy Information Administration; Aug. 19) - Amid high uncertainty in the global oil market, the U.S. Energy Information Administration has lowered crude oil price forecasts in its Short-Term Energy Outlook, expecting West Texas Intermediate crude to average $49 per barrel in 2015 and $54 in 2016 — $6 and $8 lower than forecast in last month's energy outlook.
Concerns over the pace of economic growth in emerging markets, continuing (albeit slowing) supply growth, increases in global oil inventories, and the possibility of increasing volumes of Iranian crude oil entering the market contributed to the changed forecast, the EIA said.
Pennsylvania looking at more revisions to oil and gas rules
(Pittsburgh Post-Gazette; Aug. 18) - Pennsylvania environmental regulators are making a list of items they want to see in another major revision to the state’s oil and gas rules, just as they near the end of a contentious rule-drafting process that will have taken half a decade when it is finished next year. In an Aug. 12 conference call to announce the final rules package for aboveground oil and gas activities, Department of Environmental Protection Secretary John Quigley cast his comments repeatedly toward the future.
“This is not the end of the process,” he said. “There is more study needed on additional measures, and there will be more rule-making in a separate process, to ensure responsible drilling and protection of communities, public health and the environment.”
Regulators gave few details about what the next round might hold, but they signaled some areas. Quigley said the agency will release more information about the potential scope of the next regulatory package, probably between October and December.
Rules to control noise from well sites — which the department drafted then dropped from the current package, calling them “premature” — might become part of a future regulation after the agency develops a best-practices guide, state officials said. Quigley said the agency is “looking in particular at public health protections” as it compiles a list for the next regulatory package “because that is certainly one of the areas of biggest concern.” One source said air quality issues would be covered in the next round.