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News Briefs From Former Alaska Gas Pipeline Federal Coordinator, Larry Persily


We appreciate comment from the Transportation Institute, represented by our longtime reader, Rich Berkowitz.  -dh

This pronouncement from Shell's CEO, Ben van Beurden, is the first time I have heard mention of a "dry hole" with respect to Shell's Arctic drilling.  It is discouraging, to say the least.

"In a conference call with journalists on Thursday, Mr. van Beurden said the well that Shell drilled in the Chukchi Sea this summer was “a dry hole” and “a major disappointment,” but that it was “very conclusive” and made further expensive drilling unnecessary. He added the company was “demobilizing” its fleet of drill ships and support vessels there and winding down the operation.

Mr. van Beurden also criticized the licensing process in the United States, saying that the American authorities “should simplify and modify the permitting process” if they have the ambition to further develop oil in the area. On Thursday, Shell said it was taking $2.6 billion in write-offs for Alaska."

Richard Berkowitz

Director, Operations

Transportation Institute

(206) 419-6691

rberkowitz@trans-inst.org

www.trans-inst.org

Shell's $7 Billion Chuckchi Effort A "Dry Hole", Predecessor Mistake; Analyst Calls Chukchi Shell's "Strategic Mistep"

New York Times by Stanley Reed.   …   Analysts say that Mr. van Beurden is trying to clean up mistakes by his predecessors and that doing so could allow Shell to focus on its strengths in liquefied natural gas and deepwater oil projects.

“Getting out of previous strategic missteps (Alaska, shale, more oil sands) via the impairments is a necessary evil,” Oswald Clint, an analyst at Sanford C. Bernstein in London, wrote in a note to clients on Thursday.

In a conference call with journalists on Thursday, Mr. van Beurden said the well that Shell drilled in the Chukchi Sea this summer was “a dry hole” and “a major disappointment,” but that it was “very conclusive” and made further expensive drilling unnecessary. He added the company was “demobilizing” its fleet of drill ships and support vessels there and winding down the operation.

Mr. van Beurden also criticized the licensing process in the United States, saying that the American authorities “should simplify and modify the permitting process” if they have the ambition to further develop oil in the area. On Thursday, Shell said it was taking $2.6 billion in write-offs for Alaska.


WSJ by BILL SPINDLE and ERIN AILWORTH.  As a financial storm lashes the U.S. oil patch, energy companies are seeking shelter in the closest thing the industry has to a port: a sprawling expanse of West Texas known as the Permian Basin.  (Comment: Do Alaskans think this world-wide trend will not affect TAPS throughput, Alaska's budget or the Ak-LNG project?  -dh)



Legislative Hearings: LNG updates:

ADN by Pat Forgey.  TransCanada has been trying to bring Alaska's vast natural gas reserves to market for decades, but now the pipeline company that was once viewed as Alaska's savior is on the verge of ending a high-profile relationship with the state.  Gov. Bill Walker is asking the Legislature for money and authority to buy out TransCanada's investment

US News & World Report/AP.  Legislative consultants say the financial case for keeping or shedding TransCanada is too close to be persuasive, given all the uncertainties at this early stage. They say the decision should focus on strategic considerations.

RELATED: 

ADN by Pat Forgey.   Gov. Bill Walker is asking the Legislature for money and authority to buy out TransCanada's investment in a proposed 800-mile natural gas pipeline to a liquefaction plant and liquefied natural gas export terminal in Nikiski. Legislators already have spent a week in special session considering the question.

That decision may result in TransCanada going its own way and focusing its efforts on its own plan to export Canadian LNG from Prince Rupert, British Columbia.    


 

LARRY PERSILY'S RELEVANT NEWS LINKS:

Oil and gas news briefs for Nov. 2, 2015

Global LNG oversupply leads to more spot sales and trading
 
(Reuters; Oct. 30) – Producers and importers of liquefied natural gas are preparing to trade the fuel more actively on a spot basis as a looming supply surplus threatens to overwhelm decades-old contracts and push prices lower. With 130 million metric tons of additional LNG capacity in Australia and North America by 2020, producers and traditional buyers such as Japanese utilities have expanded trading teams to handle excess cargo flows and navigate a more open market.
 
Excess supply, along with rising demand, is key to establishing a liquid commodity market, as opposed to times of tight conditions when producers and consumers tend to enter long-term fixed supply agreements rather than trade openly. "Buyers will be able to have their choice … (of) very large supply sources that can deliver pretty much at a moment's notice," Cheniere Energy CEO Charif Souki said this week at a conference in Singapore. Cheniere is set to start up its LNG plant at Sabine Pass, La., in January
 
LNG market ‘a train wreck happening in slow motion,’ says analyst
 
(Wall Street Journal; Oct. 30) – With liquefied natural gas prices slumping and demand in key consuming countries like China looking shaky, the energy industry’s optimism seems to have fizzled. In recent years, oil and gas majors have invested billions of dollars in LNG projects in countries such as Australia and Qatar, while vast sums have been spent on plants that turn LNG back into gas in consuming countries, all in the belief that demand for the fuel would rise rapidly. It hasn’t quite worked out as planned.
 
The pessimism surrounding the LNG industry was unmistakable at this week’s annual Gastech conference in Singapore. One regular attendee, an LNG strategist at a Malaysian energy company, said she had never been to a gloomier energy event. “The entire industry is worried because it is hard to tell when China’s demand will pick up again. Rising demand from smaller countries such as Pakistan, Egypt and Bangladesh is not enough to offset the declining demand from north Asia,” she said.
 
LNG prices are certainly in a funk. Two years ago, gas to Japan and Korea sold at $15 to $16 per million Btu. This month, cargoes are selling for $6.65. LNG prices are like “a train wreck happening in slow motion,” said Neil Tomnay, global head of gas and LNG research at Wood Mackenzie. Suppliers cannot rely on China’s rapid industrialization to soak up extra gas, with economic growth there dawdling. The industry now believes China won’t need all the LNG it has contracted to buy, Tomnay said. In line with his comments, PetroChina and CNOOC offered three LNG cargoes for resale last month.
 
Reuters analysis shows low prices undercut LNG economics
 
(Reuters; Oct. 29) – When Cheniere Energy opened its liquefied natural gas import terminal in Louisiana in 2008, a U.S. shale drilling boom soon made it obsolete. Seven years on, with the firm about to open an export plant on the same site, the timing, again, is far from ideal. A Reuters analysis shows that a slump in oil prices and glut of LNG threaten to undercut the economics of U.S. gas exports, crimp shippers' profits and possibly reduce demand for facilities such as Cheniere's $12 billion Sabine Pass plant.
 
New supply across the globe, faltering demand and a steep drop in oil-linked LNG prices will make short-term, or spot, deliveries of U.S. gas to markets in Europe and Asia unprofitable next year, according to the Reuters calculations. The calculations, corroborated by analysts, raise questions about the profitability of short-term shipments not just from Sabine Pass but from the four other U.S. export plants under construction.
 
The other U.S. projects are in Maryland, Louisiana and two in Texas, all set to go online between 2017 and 2019. "U.S. LNG will materialize at a time when the biggest market (Japan) is witnessing a demand reduction and when supply is growing again massively thanks to Australia," said Thierry Bros, senior gas analyst at Societe Generale. "This is the worst possible timing for this new LNG that has no dedicated market."
 
Low prices will spur increased LNG demand, Barclays says
 
(Energy Wire; Oct. 29) – New liquefied natural gas export terminals and expansions will be put on hold as players reassess the market, a Barclays research note argues. "Most of the demand outlooks we have seen were based on the expectation that LNG prices were going to be in the teens," the analysts wrote, referring to prices that prevailed as recently as a year ago before the oil and gas price crash. "If it is going to remain in the $7 to $9 (per million Btu) range, we think these demand outlooks are understated."

But many analysts expect crude prices to recover in the next year or two, rising to a $70 range. Meanwhile, spot and contract LNG prices will likely remain depressed, they said, due to factors including those lagging averages, the flood of new LNG supplies coming online and excess supply turned away by buyers. "When crude prices recover and LNG prices don't follow suit, we think fertilizer, power and petrochemical industries are going to have to seriously consider switching from higher-cost feedstocks such as naphtha and fuel oil," the analysts wrote, with a resultant surge in gas demand.
 
Yamal LNG continues work to secure financing
 
(Reuters; Oct. 29) – A deal to raise financing for the Novatek-led Yamal LNG project in the Russian Arctic is in its final stages, the chairman of Gazprombank, Andrey Akimov, told Reuters. Gazprombank is a co-lender to Yamal LNG on the Russian side, along with Sberbank. State development bank VEB has pledged $3 billion in banking guarantees to the $27 billion project that is under construction.
 
Akimov said Chinese lenders are set to provide $12 billion, Russian banks $4 billion, and export credit agencies are expected to put up $4 billion. He said he planned to travel to China in early November for talks on the deal. But Akimov’s reassurances run contrary to reports in Kommersant, a Russian business daily, which reported Oct. 29 that Yamal is having trouble with financing. The Russian, French and Chinese partners have already put up $10 billion, leaving at least $17 billion still to be financed.
 
Novatek has been negotiating with Chinese banks for more than a year, the newspaper reported. Sources say that the main cause for the delay in negotiations is a very high interest rate on bank loans in China. The newspaper refers to sources saying that Novatek, which cannot attract financing in dollars due to the Western sanctions against Russia for its role in the Ukraine conflict, hopes to get the money from European export agencies because that would be cheaper than attracting the loans from Chinese banks.
 
Qatar expects long-term LNG demand growth at 2% a year
 
(Gulf Times; Qatar; Oct. 28) – The longer-term fundamentals for natural gas and LNG look bright amid new market dynamics and price volatility, a senior Qatargas executive said. Qatargas chief operating officer Alaa Abujbara presented at Gastech 2015 in Singapore, focusing on recent changes in global gas and LNG markets and changes expected over the medium to long term. He said the energy sector was going through a “fundamental re-balancing,” characterized by “new market dynamics and price volatility.”
 
Excess LNG will go where it can best compete with coal, analyst says
 
(Reuters; Oct. 28) – What's well known is that a wave of new liquefied natural gas is about to swamp already well-supplied markets. What's less known is how these cargoes will be absorbed. The assumption has always been that China would soak up vast quantities of the fuel, driven by rising energy demand and the need to switch from more polluting coal. But this view has been challenged by China's slowing growth and by evidence that gas is failing to make the anticipated inroads into China's energy markets, mainly as it remains a higher-cost option for industry, consumers and power generators.
 
China is key player in coal-to-gas switching
 
(Reuters; Oct. 29) – A wave of liquefied natural gas due to hit energy markets over the next couple of years is expected to displace tens of millions of tons coal demand globally, helped by government initiatives to move away from polluting power generation. Both coal and LNG are oversupplied after higher prices during the past decade triggered investments in new projects and expansion plans. That new supply arrived just as demand weakened.
 
At the same time the gap between their prices has narrowed as LNG has become more competitive, particularly where governments penalize coal via taxes or emissions trading schemes. "There is a monstrous amount of LNG coming into the market, on pure cost economics you can say coal is cheaper than LNG at any realistic price, but it (the gas) is going to be used somewhere and if it is coming in the volume that's forecast it will be displacing coal," a coal trader said.
 
Cheniere signs 5-year deal to sell LNG to French company
 
(Bloomberg; Oct. 28) – Engie has agreed to buy liquefied natural gas from Cheniere Energy, increasing the importance of France as a market for U.S. gas. The Houston-based company will ship as many as 12 LNG cargoes a year to France’s Montoir-de-Bretagne regasification terminal under a five-year contract, Engie said Oct. 28. The deliveries, on an ex-ship basis, will start in 2018 at prices linked to northern European markets, Engie said. The LNG can alternatively be shipped to other European terminals.
 
Australia LNG project set for November start-up
 
(Sydney Morning Herald; Oct. 30) – Origin Energy has confirmed November as the date for the long-awaited start-up of its $24.7 billion Australia Pacific LNG project in Queensland, making it the third of the state's huge coal-seam gas projects to begin production this year. Origin's head of integrated gas, David Baldwin, said the first liquefied natural gas would be shipped from the plant "a few weeks thereafter.”
 
Company targets 2016 for decision on African floating LNG project
 
(Reuters; Oct. 29) – London-based Ophir Energy expects to make a final investment decision in 2016 for its floating liquefied natural gas project off Equatorial Guinea, a senior executive said Oct. 29. Oliver Quinn, director of new business for Ophir, told an industry conference that first gas production from the project would come by the middle of 2019. The offshore operation would produce 2.2 million metric tons of LNG per year.
 
Eni still plans Mozambique floating LNG decision this year
 
(Reuters; Oct. 30) – Italy's Eni said Oct. 30 it was still looking to secure debt financing for its Coral LNG offshore project in Mozambique and will make a final investment decision on the development by year-end. Eni is in discussions to secure 60 to 70 percent debt financing for the project, Ferruccio Taverna, vice president for Eni in Mozambique, said at an industry conference in Singapore.
 
First Nation says B.C. approval of LNG plant premature
 
(The Canadian Press; Oct. 28) – The Squamish Nation says the B.C. government's conditional approval of a proposed liquefied natural gas export facility north of Vancouver did not fully assess how the project would impact its aboriginal rights. Chief Ian Campbell said the province granted an environmental assessment certificate for the Woodfibre LNG plant this week without full consultation with the First Nation.
 
Campbell said the Squamish Nation is looking forward to further discussions with the government because many of its own conditions for approving the facility are different than those set out in the certificate. The Squamish Nation has expressed concern about the impact on fish in Howe Sound. The B.C. Environment Ministry has said Woodfibre LNG must continue to work with aboriginal groups.                                                 
B.C. LNG developer appeals federal import duty on plant
 
(Business in Vancouver; Oct. 27) – If Canadian liquefied natural gas projects are to avoid the cost overruns that Australia experienced, they might need to have some of the fabrication done offshore, rather than try to build everything on site, according to a recent analysis by KPMG. But one company that’s trying to do just that has had a $75 million hurdle placed in its path by the federal government in the form of a customs duty on a floating LNG plant, and as a result is postponing a final investment decision.
 
Qatar largest LNG and condensate exporter in the world
 
(Arabian Oil and Gas; Oct. 26) – Qatar, the world's second-largest exporter of natural gas (behind only Russia), exported nearly 4.3 trillion cubic feet in 2014, almost all of it as liquefied natural gas — making the country the world's largest LNG exporter in 2014 at 32 percent of global supply, according to a recent country report released by the U.S. Energy Information Administration. Most of Qatar's exports go to Asia.
 
Qatar has more than 90 percent of its LNG production volumes committed through 2021. Due to a self-imposed moratorium on new projects, however, Qatar's production has plateaued and could begin to decline soon. 
 
Hawaii Gas still wants to bring bulk LNG to the islands
 
(The Garden Island; Hawaii; Oct. 25) – Hawaii Gas is continuing with its plans to bring liquefied natural gas in bulk to Hawaii. Joseph Boivin Jr., senior vice president, said LNG will be the premier energy source going forward in Hawaii. It’s cleaner than petroleum products, cheaper, environmentally friendly and there’s plenty of it. “We want to bring larger-scale natural gas to the islands,” he said during a recent visit to Kauai.
 
LNG ship builder says market will pick up
 
(Bloomberg; Oct. 29) – South Korea’s Daewoo Shipbuilding & Marine Engineering, the world’s second-biggest shipbuilder, expects demand for liquefied natural gas carriers to return next year as global efforts to reduce greenhouse gases increase the need for cleaner fuel. More industries will look at using gas to replace other fuels, Kim Nam Soo, deputy director of the company’s ship design department, said in Singapore.