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Northern Gas Pipelines is your public service 1-stop-shop for Alaska and Canadian Arctic energy commentary, news, history, projects and people. It is informal and rich with new information, updated daily. Here is the most timely and complete Arctic gas pipeline and northern energy archive available anywhere—used by media, academia, government and industry officials throughout the world. Northern Gas Pipelines may be the oldest Alaska blog; we invite readers to suggest others existing before 2001.

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1-10-14 Premier Jim Prentice Keeps Keystone XL At Top Of Agenda

10 January 2015 11:58am

Premier Jim Prentice, Keystone XL, Pipeline, Nebraska Supreme Court, approval, Dave Harbour Photo

Calgary Sun.  Statement from Premier Jim Prentice (NGP Photo) on the Nebraska Supreme Court ruling

Premier Jim Prentice issued the following statement after the Nebraska Supreme Court upheld a state law granting the governor the authority to approve the Keystone XL route through the state:

“Today’s ruling in Nebraska clears the path for approving the Keystone XL pipeline.

“This ruling clarifies the regulatory process in Nebraska allowing the State Department to proceed with the Presidential Permit for the cross-border portion of the pipeline based on its own findings. The facts support the approval of this important project.

“The rigorous studies of the project, including the State Department’s thorough environmental analysis, have recognized Alberta’s progressive environmental initiatives and the numerous benefits of the pipeline. 

“Keystone XL supports North American prosperity and economic growth and offers Americans energy security and jobs from a friend and ally committed to responsible resource development.

“I will be traveling to the U.S. the first week of February to discuss Alberta’s commitment to the environment and what safe pipelines and job creation can mean on both sides of the border.

“I look forward to working with incoming Nebraska Governor Pete Ricketts, with whom I have spoken, who is a supporter of the Keystone project.”

Categories:

1-9-15 Will The Keystone XL Ever Be Built?

09 January 2015 2:48am

Today is the Alliance's Meet Alaska Conference in Anchorage


Will The Keystone XL Ever Be Built?

(See Senator Murkowski's Release Today)

by

James R. Halloran, Independent Energy Analyst

James Halloran, energy analystMost of the readers know we deal with trends, not forecasts. We have only made three forecasts that involved “a rate and a date” in fifteen years; our record is 2-1, and would be perfect if natural gas had moved $0.10 higher in 2013. However, we have gone out on a bit of a limb with two forecasts recently. The first one is well known:The Keystone XL Pipeline, at least the five feet that crosses the US/Canadian border, will not get built. Ignore the headlines coming out of the Beltway these days; they are just smoke and puffery. Save the time otherwise spent on that topic for something more rewarding. Our position is stated here:

With Overwhelming Citizen Support, Keystone XL Can Be Approved
 
by
 
Dave Harbour
 
Our esteemed friend, reader and energy expert, Jim Halloran, has presented a logical view of the future of Keystone, assuming the President believes he can get away with continuing to block the future of that pipeline / lifeline (Yes, it could be an economic lifeline to tens of thousands who need good jobs).
 
President Obama will deliver the 2015 State of the Union Address on Tuesday, January 20, 2015.  He will likely try to tout economic improvements which are more due to the oil and gas shale phenomenon (on mostly private property), than on his leadership.
 
The Consumer Energy Alliance urges its members -- as we urge our readers -- to call U.S. House of Representatives Members TODAY in support of H.R. 3, “The Keystone XL Pipeline Act.” The bill will give congressional approval of the Alberta-to-Texas, crude oil Keystone XL pipeline that has been under review for more than six years. The U.S. House of Representatives is expected to vote on the legislation TODAY, January 9, 2015.

Yesterday, the Consumer Energy Alliance (CEA) sent a letter to House Leadership expressing support for the legislation. Please refer to CEA’s letter for assistance in helping to draft your own letter to members of the House of Representatives.  Also, refer to BuildKXLNow.org, for more information.

You might also be interested in the Senate's action on Keystone yesterday.  Scroll down to the 1-8-15 page for the video review of Senator Lisa Murkowski's Energy Committee Business Meeting.

Halloran (left) believes that if Obama approves Xl, "the Greens would then take over in court...."  To combat this obstructionism, the Congress could guarantee expedited judicial review and pass enabling legislation somewhat like the Alaska Natural Gas Pipeline Act of 2004 and the Alaska Natural Gas Transportation Act of 1976.

With a lot of bipartisan support from Congress, the President will find it harder to continue blocking Keystone XL.  

 
We may not be able to change his mind, but a strong show of support could certainly put pressure on democrat candidates for 2016 elections to urge White House approval.
 
And if, even then, we fail, we would at least have done our best.
 
Thank you for your column, Jim; truly, it is a wake up call of what is likely to happen absent overwhelming citizen action!     -dh

“Will the northern portion of the XL project get built any time soon?” The answer, in our opinion, is decidedly NO. 

The environmental lobby (in England this amorphous set of interest groups is referred to as the “Green Blob”) has drawn a line in the sand to keep this pipeline from ever seeing the light of day. Fighting XL has become a Line of Business for many of them, with its own ongoing fund-raising group. They have a great playbook ready to go, to tie XL up with litigation and the aid of various government agency rules. The game is to tie it up as long as it takes to defeat it. This effort reinforces future “lines of business” when the Green Blob decides to take a stand. It is highly likely they can tie it up for a further seven years or so, by which time the market will have found ways to deal around its absence.

But we also believe Obama will never approve it, part of his “legacy” (most would call it narcissistic petulance). He would not have time to do so, anyway, between golf games, schmoozing with billionaires, and screwing up foreign policy. But even if he were to approve it, the Greens would then take over in court, and it will not get built.

The second forecast is known by fewer people, but I have a record of it with certain people (Nick and John, you are the source for the truth). I went on record in early December that the Energy sector of the market, as represented by the XLE, would hit its cycle bottom on December 15, 2014. There is an historical reason for the date, which I will share later if this works out. So far, the forecast is holding. The second part of the forecast is to be overweight energy in 2015. Looking back on the markets over the years, energy has occasionally finished last among the sectors, but it has never done it two years in a row. That does not mean it bolted to the head of the pack the following year, but it made out well in the trailing year, except for 1998-99 (the Dot-com Era). After that exception, it took off for several years in row.

Energy was last in 2014 even before crude oil tanked in the fourth quarter; cutting the price in half was just the cherry on the sundae. See the chart below for commodity behavior.  

(Graph is being reformatted for insertion here....)

Attached is a note from Sanford Bernstein about the market rebounds for the Energy sector over the years. Take a look at Exhibit 2, which shows that it has been a long time since Energy has been this small a relative component of the market (below 10%). As a bet on a rebound, it has a least good set of odds in its favor.

What does this mean for oil prices? That is a subject for other notes. But on “follow the money” basis, we like the possibility that enough trends have spotted by observers that they will form a decent recovery over the next 18-24 months (the market is generally about nine months ahead of an actual recovery in business operations).

The Bottom Line: We do not know where oil (and natural gas) will bottom out. But we suspect that the market is telling us the seeds of a shake out of the weak is underway, which will help a decent rebound.

The flows into Energy are getting ahead of the price increase; see the note below.

Oil investors pour most money into funds in 4 years

Investors betting oil will rebound from the lowest prices in 5 1/2-years poured the most money in more than four years into funds that track crude.

The four biggest oil exchange-traded products listed in the U.S. received a combined $1.23 billion in December, the most since May 2010, according to data compiled by Bloomberg. Another $109.9 million was added this month through Jan. 5.

Investors are piling into oil ETFs even after West Texas Intermediate crude, the U.S. benchmark, tumbled the most since 2008 last year amid signs of rising supply and weak demand. Shares outstanding of the four funds surged to the highest since 2009.

Oil Prices

“Commodity investors can be contrarian investors,” said Matt Hougan, president of San Francisco-based research firm ETF.com. “There are a lot of true believers in the commodity space. A lot of people are attached to the idea that oil’s natural price should be $100, not $50.”

The U.S. Oil Fund, the biggest oil ETF, attracted $629.9 million in December and $100.4 million so far this month. The fund, which follows WTI prices, added 1.8 percent to $18.369 yesterday on the New York Stock Exchange.

The number of U.S. Oil Fund shares on loan to short sellers was 3.93 million on Jan. 5, down from as high as 9.53 million last month, data compiled by Markit and Bloomberg show.

Money is pouring into oil ETFs even as commodity-linked index liquidations surged to a record $17 billion in the first 11 months of last year, Barclays Plc said in a report yesterday. Total commodity assets under management fell to $276 billion in November, the lowest since early 2010, according to the bank.

Shares Outstanding

The four funds also include ProShares Ultra Bloomberg Crude Oil, iPath S&P GSCI Crude Oil Total Return Index ETN and PowerShares DB Oil Fund. They had 171.6 million shares outstanding as of Jan. 6, the highest since March 2009, according to exchange data compiled by Bloomberg.

WTI futures slid below $50 a barrel for the first time since April 2009 earlier this week. The benchmark, which tumbled 46 percent in 2014, climbed 39 cents, or 0.8 percent, to $49.04 in electronic trading on the New York Mercantile Exchange at 2:19 p.m. Singapore time.

Oil has slumped as U.S. production grew to the highest in more than three decades and the Organization of Petroleum Exporting Countries kept its output above quota for a seventh month in December. OPEC, which pumps about 40 percent of the world’s oil, decided to maintain its output target at 30 million barrels a day at a Nov. 27 meeting in Vienna.

The CBOE Crude Oil Volatility Index, which measures oil price fluctuations using options of the U.S. Oil Fund, dropped to 53.25 yesterday after reaching 57.67 on Jan. 5, the highest since October 2011.

James R. Halloran, Independent Energy Analyst  


Keystone XL Status Release From Senator Murkowski's Office Today:

Nebraska Supreme Court Decision Removes Last Excuse for Delay

WASHINGTON, D.C. – U.S. Sen. Lisa Murkowski, R-Alaska, today issued the following statement on the Nebraska Supreme Court ruling upholding the state’s approval of the current Keystone XL pipeline route through the state.

“Today’s court decision wipes out President Obama’s last excuse,” Murkowski said. “He’s had six years to approve a project that will increase U.S. energy supplies and create closer ties with our nearest ally and neighbor, and he’s refused to act. Regardless of whatever new excuse he may come up with, Congress is moving forward.”

Murkowski, chairman of the Senate Energy and Natural Resources Committee, moved bipartisanlegislation out of the committee on Thursday approving the Keystone XL pipeline.

###

Note: Please do not reply to this email. This mailbox is unattended.

For further information, please contact Robert Dillon.

Visit our website at http://www.energy.senate.gov/public/

Categories:

1-8-15 Our Favorite Energy Guru Discusses The Future Of Oil & Gas Prices

08 January 2015 10:43am

U.S. Senator Lisa Murkowski, Senate Energy Committee, Keystone XL Pipeline, Photo by Dave HarbourU.S. Sen. Lisa Murkowski, (NGP Photo), today conducted a business meeting to markup an original bill to approve the Keystone XL pipeline -- reported favorably by the  committee on June 18, 2014.  Watch the action here.... 

See related, CEA "Call To Action" here....    

-dh

James Halloran, energy analystBelow is a note that our friend, reader and Independent Energy Analyst, James Halloran provided.  This viewpoint, from one of our favorite oil and gas experts, should be read and fully absorbed by every elected official in Alaska -- whose state operating budget is over 90% dependent on oil revenue.  Note: Alaska has the highest state per capita debt and per capita spending in America Reference 1, 2, 3).  Elected officials and voters should not be playing a blame game with each other or upset with the oil industry for basing a superstructure of state spending based on a volatile commodity.  Instead, they should intently focus now on reducing spending and debt so that a high dependency on oil does not portend disaster in the future when prices plunge.  

-dh


"Speaking of a natural gas-oriented project being affected by the price of crude oil, here is something to consider (much more on it sometime soon)":

When the US imported more crude oil and a fair amount of natural gas, there was some oil-on-gas competition in some markets. As a result, there was a correlated price between the two commodities. The BTU exchange was one barrel of crude oil for about 6MCF of natural gas, but for marketing reasons the average balance came in one barrel for an average of 8.5 MCF.When we expanded the shale plays and no longer imported much natural gas, the  exchange balance disappeared; there was no more oil-on-gas competition. The ratio went to 25 (gas)/1 (oil) or even higher. Heat (BTU) value had nothing to do with it.

Now that we are on the cusp of perhaps exporting crude oil and natural gas, the price relationship, on a global stage, is starting to reappear. We are willing to bet this pricing convergence will only get stronger.

The next day, we ran into Rusty Braziel’s “top ten prognostications for 2015” on his website blog (see below for links). A central theme in many of his ten points deals with the several market tangents of natural gas and crude oil showing up on the global market. In general, we agree with Rusty’s prognostications. We may deal with a few quibbles in future notes, but any such discussion would only detract from getting through this longer-than-normal post.

The Bottom Line: As the various hydrocarbon forms have more global markets, the pricing will become more intertwined and complex.

To assist the time-challenged, we use our usual highlights to help ease through the material.

https://rbnenergy.com/the-top-ten-rbn-energy-prognostications-for-2015-year-of-the-goat

https://rbnenergy.com/the-top-ten-rbn-energy-prognostications-for-2015-year-of-the-goat-5-1

As we enter 2015, the new theme is clearly price.  If the combination of domestic markets and exports are not enough to balance supply and demand, something has to give.  And that something is price.  Price must drop low enough to discourage production by someone.  But the realignment of price relationships goes far beyond just producer economics.  It impacts all aspects of energy markets, from producers to consumers and from petchem plant operators to gas processors.  So this year’s prognostications are mostly about price – where prices are headed and what happens when they get there.

Like any good New Year’s top ten list, we’ll start at number ten and work our way down to number one.

10.   Crude prices won't 'rebound' or ‘recover’ any time soon.  Welcome to the new normal.  $100/bbl crude oil prices are in the rear view mirror, at least for a couple of years.  Since 2008, U.S. crude oil imports are down 3.3 MMb/d, and net petroleum product imports have reversed to become exports to the tune of another 1.5 MMb/d.   Those barrels that the U.S. used to import are now looking for new homes, and having a hard time finding those markets.  With no production cuts in the offing and a significant demand response years away, oversupply looks to be with us for a while.  How long?  No way to tell.  But if you want a corollary, look back at what happened in the crude crash of 1986. (The 1986 crash is a good comparison because it was mostly driven by developments in the crude markets, not like the crash of 2008, which was more driven by macroeconomic factors.)  Crude prices declined by more than 60% in early 1986, came back to about 50% of the pre-crash level for the next year, and did not get back to the pre-crash price until three years after that.  That rebound (in 1990) only lasted about three months.  Then crude prices sunk back below pre-crash levels for another ten years.  Ten years!  We are certainly not saying that it is going to take fourteen years for prices to recover this time.  But don’t expect quick.  There is a lot of oil out there in them thair shales.

9.   U.S crude oil production won’t decline any time soon.  There is some expectation, at least in the popular media, that declining crude prices will soon result in declining U.S. production.  After all, tens of billions of dollars have just been whacked out of producer 2015 expected revenues.  Last week we calculated $16 billion out of the Bakken alone in Boom Clap – The Sound of My Netback.   But those production declines are months away, for at least four reasons: (a) Producers are cutting back drilling, but the rigs that are left are focused on their highest yield sweet spots.  No more science projects.  The producer’s goal is to maximize revenue, and that means maximize production volume.  (b) In recent years a lot of leases signed by producers have HBP (held by production) clauses, requiring drilling and production to hold leases that were acquired at significant costs.  Some wells will be drilled and produced to hold these leases, regardless of short term economics.  (c) Some producers were wise enough to hedge their prices, and will continue to drill and produce against those higher priced forward sales, and (d) producer economics will be improved by lower drilling service costs, which will be coming down fast in response to lower drilling activity.  Continuing high levels of production will not be good for prices.  We’ve seen this movie before.  Those that were in the gas markets a few years ago when gas prices crashed below $4.00 will remember these factors kept big plays like the Haynesville going strong for years after spot price economics no longer justified most drilling activity.  

8.   Gas processing has a problem.  We explored this issue two weeks ago in Ratio Ga-Ga? – Consequences of a Lower Crude-to-Gas Price Ratio.  At that point the Frac Spread (the difference between the price of NGLs and natural gas on a Btu basis) had dropped below $2/MMbu for the first time since 2009.  That number is a pretty good indicator of the health (or lack thereof) of natural gas processing.  The Frac Spread had averaged $6/MMbtu since mid-2012, and back in 2011 enjoyed a Golden Age above $12/MMbtu.  But sadly for gas processors and NGL producers, the Frac Spread closed out 2014 below $2/MMbtu.  That spread hardly justifies the cost of processing, much less the cost of transporting the NGLs to market.   Don’t blame it on ethane.  As of year-end, ethane is back to a price about equal to natural gas, so the frac spread calculation is indifferent as to whether ethane is rejected or not.  When the economics for gas processing evaporate (so to speak), processing becomes a cost of doing business, no longer a revenue enhancing opportunity.  Whether the pain goes to the processor or producer depends on how the processing contracts between the parties are structured.  But one way or the other, someone will be experiencing that pain.

7.   Ethane-only petrochemical crackers have a problem.  It seemed like a good idea at the time.  Build a petrochemical cracker to produce ethylene from cheap ethane, and keep capital costs low by designing only for a single feedstock. It certainly made sense with ethane cheap relative to other NGL feedstocks like propane, butane, and natural gasoline.  Well guess what.  Back in November, with NGL prices falling with crude oil prices, the margin for running propane in a typical Gulf Coast ethylene cracker nudged above ethane.  In early December, butane moved above ethane  Then earlier this week, for the first time since 2011, the margin for running natural gasoline was better than ethane.  [Backstage Pass subscribers can see Spotcheck Petchem Margin Graphs, updated each day on rbnenergy.com]  There are a lot of reasons for that earth-shattering development that we don’t have time to get into here, the most important of which is the low crude price.  But suffice to say that the good, old-fashioned flexible cracker that has the option to run the most attractive feedstock on any given day looks like a pretty good idea.  And any cracker that has no optionality around feedstock selection will likely be at a competitive disadvantage to those flexible crackers. There are more than a half dozen of those ethane-only cracker slated to be built over the next five years in the U.S.  Hmm.

6.   Marcellus gas still has a problem.  In 2014, TGP Zone 4 Marcellus prices averaged $1.70/MMbtu below Henry Hub.  That was $2.62/MMbtu on an absolute basis. As mentioned above, on New Year’s Eve, TGP Zone 4 was down to only $1.12/MMbtu.  From the stand point of producers in the region unfortunate enough not to have take-away capacity out of that market, this is a big problem.  Even the most efficient producers drilling the most prolific wells in Northeastern Pennsylvania need at least $2.00/MMbtu to break even.   There are new pipelines coming that eventually will help from Spectra, Williams, Kinder Morgan and others (see the blog last week titled I Believe (This) Can Fly—Pursuing Gas Pipeline Projects in the Northeast).  But most of those projects won’t be done for another three or four years.  In the meantime, TGP Zone 4 Marcellus prices will stay in the doghouse, as will prices across most of the Marcellus and much of the Utica.

5.   It is nice that condensate exports are legal, but….  the economics of condensate exports don’t make much sense, at least so far.   There is just not enough difference between condensate prices in the U.S. and prices in Asia (the primary international market for U.S. condensates) to justify transporting barrels there from South Texas.  The first cargo of condensate under the new BIS rules moved out on July 30th to Korea (new BIS FAQs here).  No more than one or two cargos per month have moved out since.  Part of the slow start is just getting the export process up and running.  But the bigger problem is economics.  Most of the cargos that have moved out do not appear to make economic sense.  Let’s say it costs you $5 bucks to get from the Eagle Ford to Houston, and $6 bucks to get across a Houston dock and then via ship to the Asia/Pacific region (some of the other cargos were a lot more expensive than that).  Then let’s say the international market pays $5 below Brent for stabilized condensate.   So back at the wellhead the producer is getting $16 below Brent, or $12 below WTI (Brent vs. WTI was $3.73/bbl on 1/2/2015).  Can the producer do better than that in the domestic market?  Yup.  So we understand most of these cargos have been moving out for strategic reasons - to provide supply diversity to buyers, and to enhance their negotiating leverage with their traditional suppliers – mostly from the Middle East.  How much of that strategic buying can continue at current market price differentials is an open question, but probably not enough to justify significant condensate exports unless we see a widening of the Brent vs. WTI differential.

4.   Ethane rejection will get messy.  Actually it already has.  Ethane production remained at 1.1 MMb/d in October according to EIA, and that was before the ethane-to-gas ratio (an indication of the relative value of ethane to the alternative of selling it as gas – called rejection) dropped into historically low territory.   That ratio fell into the low 80% range in November, then collapsed to the low 60% range in early December 2014, meaning that Mont Belvieu ethane on a BTU basis was worth only 60% of Henry Hub natural gas.  [Backstage Pass subscribers can see the Spotcheck Ethane-to-Gas Ratio Graph, updated each day on rbnenergy.com

During that period of time it is possible that ethane rejection reached somewhere between 400-500 Mbbls, a historically high level.  And there was a lot of ethane being burned as fuel in gas plants, at fractionators and other facilities that had access to ethane  But the use of ethane as fuel via rejection could have been much more.  The economics during most of November and December would justify rejection of almost all ethane everywhere in the U.S.  As we pointed out inBack to the Ethane Asylum,  there are a variety of reasons why ethane that could be sold for more money as natural gas is recovered anyway, including (a) - inadvertent rejection of propane, (b) timing/consensus on rejection decisions, and (c) the fact that producers have made volumetric and take-or-pay commitments to gas processors, NGL pipelines and fractionators, effectively making those costs ‘sunk’ and thus ignored in the economic decision to reject ethane. 

But there is a fourth reason that is becoming a much bigger deal these days, and that is quality problems with the plant tailgate gas.  When ethane is rejected, the BTU content of the residue stream increases.  Depending on the gas quality, rejection can result in violation of natural gas pipeline BTU content specifications.  Up to now, most gas quality problems have been in the Marcellus and Utica markets, and those problems are being solved by new processing and take-away capacity.  But if ethane volumes continue to increase, those BTU issues will loom larger in other parts of the country as well.  How this plays out depends on a complex interplay between petrochemical cracker demand and growth in wet gas production. 

3.   There is (another) market share battle coming to Henry Hub natural gas.  All that Marcellus and Utica gas moving out of the Northeast (prognostication #6) has to go somewhere.  Most of it is slated to move directly to the Gulf Coast on reversed gas pipelines, or will displace gas that previously moved from the Gulf Coast to the Northeast.  Either way, a lot of gas looks to be headed toward Louisiana, home of the Henry Hub, price reference point for spot gas prices in the U.S. 

Unfortunately, for producers that is not the only gas targeting Louisiana.  Northeast gas will slam into supplies moving in to Louisiana from the west, sourced from “wet” gas and associated gas from crude oil plays in TX, NM, OK and ND.   Demand from gas fired power generation, industrial gas use and LNG exports should eventually absorb the incremental supply, but not for a few years.  The whole scenario is similar to what happened in the 2008-10 timeframe when Rockies gas battled it out with new shale supplies from the Haynesville and Fayetteville, and that was bad for Henry Hub prices.  But this time the impact could be even more dramatic, because there is a big difference in the economics of production today.  

Back in 2010, the breakeven price for Haynesville was some number just below $4.00/MMbtu.  But today many producers in Northeast Pennsylvania can profitably produce gas at prices less than $2.50/MMbtu.  Those supplies will be duking it out with producers of associated gas from the Bakken, the Permian, the Anadarko and the Eagle Ford, who – until recently - were making most of their money on the sale of crude oil and condensate.  In effect, natural gas for those producers has been a byproduct of crude production.  If you buy the argument in prognostication #9 that crude oil production will not be dropping off any time soon, that associated gas from crude oil production will keep coming too.  The result will be another battle for market share at the Henry Hub, with dire implications for natural gas prices in the medium term.  If you are interested in more information on this issue, see The Battle for Henry Hub – Ominous Implications of Natural Gas Oversupply

2.   Low crude prices could push gas prices higher.  Yes, prognostication #3 says lower gas prices are coming in the medium term.  But how about longer term?  What happens when all that new demand from gas fired power generation, industrial gas use and LNG exports comes online?  Well, it might just happen at exactly the wrong time from a supply perspective.  That is due to a strange paradox between crude oil and natural gas price relationships.  If crude oil prices stay low for an extended period of time (prognostication #10), production from those crude oil plays yielding increased volumes of associated gas - Bakken, the Permian, the Anadarko, Eagle Ford and others will ultimately slip into decline.  When they do, their production of byproduct gas will be declining at about the same time new demand is ramping up.  We all know what higher demand and lower supply would mean – higher prices for gas.  So timing is everything.  Gas prices may be lower in the medium term and higher in the longer term.  Go figure out how to put that into your investment models.

1.   The days of cheap gas relative to crude are behind us.  Natural gas has been dirt cheap relative to crude oil since 2009.  In one way or another, that price relationship has been the primary driver behind tens of billions in infrastructure investment – pipelines, processing plants, petrochemical facilities, export terminals, industrial plants, you name it. Cheap gas justifies those capital expenditures.  But cheap relative to what?  To liquid hydrocarbons, of course – meaning crude oil and all sorts of other products with prices that rise and fall with crude prices.  At RBN we’ve called it the Great Divide, and have measured the relationship as the simple ratio of the WTI crude price at Cushing divided by the Henry Hub natural gas price.  From January 2011 until November 30, 2014 the ratio averaged 27X.  It hit an all-time high of 54X in April 2012 when gas was $1.93/MMbtu and crude was $103/bbl.   But as of Friday gas was $3/MMbtu and crude was just under $53/bbl, so the ratio was more like 17X.  It hit 15X a couple of weeks ago – the lowest level since 2010 (see Ratio Ga-Ga? – Consequences of a Lower Crude-to-Gas Price Ratio).

Several of the prognostications in today’s blog are consequences of the changes in this ratio.  NGL prices (mostly tied to crude) are down relative to gas, and that puts the squeeze on gas processors (prognostication #8).  Natural gasoline is down relative to ethane (less tied to crude) which may cause problems for ethane-only crackers (prognostication #7).   The possibilitythat low crude oil prices could push gas prices higher (prognostication #2) shows just how interrelated these commodities are.  But these are only a few examples.  There are all sorts of ramifications from a shrinking crude-to-gas ratio for any investment based on cheap gas such as LNG export economics (LNG prices tied to crude), the economics of new ethanol and methanol plants (chemical prices tied to crude), and of course gas-to-liquids plants designed to take cheap gas and make liquid fuels.  None of those ramifications are good for investors.

If you look at all of the prognostications in this blog, it should be clear that we are not attempting to predict the price of crude oil or natural gas at any point in time with any degree of specificity.  However, we will not shy away from predicting something about the relationship between those prices.  The recent adjustment in crude prices should leave no doubt that investors can’t rely on natural gas to remain dirt cheap relative to crude oil.  More likely, in the future that ratio is going to bounce around a lot, sometimes getting higher but just as frequently dropping well below the levels of the past few years.  Don’t forget, the BTU equivalent ratio between crude and gas is only 5.8 MMBtu/Bbl.  So here’s the prognostication: The days when investors can rely on dirt cheap gas relative to crude are behind us.   We will see dirt cheap gas again, possibly as soon as this summer.   But the days of $100/bbl oil and $3/MMbtu gas for any extended period of time are in the rear view mirror.

Put more succinctly, no longer can you believe – with any pretense of intellectual honesty – that over the long run gas prices will be dirt cheap relative to crude oil. And that impacts just about everything that touches energy markets.

James R. Halloren, ​Independent Energy Analyst

 

 

 

 

 

 

 

 

 

 

 

James R. Halloran

11-7-14 Alaska Governor Acts On Gasline And Legislators React - President Makes Preemptive Attack On Keystone XL

07 January 2015 9:07am

See Our Earlier Commentary: "Is Alaska Beginning A New Year Of Accomplishment or Acrimony?" (Other references)


Alaska Governor Bill Walker, Photo by Dave Harbour, AGDCADN by Dermot Cole.  Gov. Bill Walker (NGP Photo) took a major step toward revising the way the state is dealing with a proposed gas pipeline by removing three members of the Alaska Gasline Development Corp. board and instructing two commissioners not to sign a secrecy pledge proposed by the Parnell administration. (Comment: We do not know enough about all the circumstances to comment on the rightness or wrongness of the Governor's action or legislative reactions.  We do observe that decision makers in a time of fiscal crisis would probably be well advised to bend over backwards to be cordial and considerate in their interactions.  The fiscal challenge descending upon Alaska and her citizens will be difficult enough to confront with a united team and much harder to resolve successfully if we are divided.  -dh)

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Mike Hawker, Alaska Gasline Development Corporation, Governor fires board, Photo by Dave HarbourMike Chenault, Speaker of the House, Alaska Gasline Development Corporation, Governor fires board, Mike Hawker, Photo by Dave Harbour

The legislators who 
sponsored the bill creating the Alaska ​Gasline Development Corporation (AGDC) today released statements in light of Governor Bill Walker’s action firing three board members and ordering his appointees to not participate in the confidentiality process.  Alaska Speaker of the House Mike Chenault, (NGP Photo-Right), and Rep. Mike Hawker, (NGP Photo), believe the three key AGDC board members were critical in ... (Read more here)
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Brad Keithley, Alaska Gasline Development Corporation, AGDC, Governor Bill Walker, Fire Board Members, Photo by Dave HarbourOil and gas attorney Brad Keithley (NGP Photo) reacts to AGDC on his Facebook Page and to general spending issues on his blog, here.  "Wrong direction. Alaska is part owner of a commercial enterprise competing in a very challenging environment. You and I wouldn't disclose our commercial strategy in our businesses; neither should the state. And you and I would want all hands important to the success of our business in the information loop; we wouldn't want to blind key players by keeping them in the dark about our strategy. Neither should the state. Taking this position on confidentiality is two significant steps backward in the success of this venture. Treat it like the Permanent Fund (which regularly enters into confidentiality agreements) and give the LNG project the tools necessary to be successful."   http://ow.ly/GWUwe

Calgary Herald by Stephen Ewart.  

Commentary: Preemption of Due Process and Erosion of the Rule of Law.

We have seen the current, Administration consistently erode the rule of law.

The EPA has acted to preemptively kill an Alaska mining project, on valid Alaska state leased ground, before the proponents filed for the first permit, on the basis of an EPA-imagined development scenario, before any public hearings, findings of fact or legal record could be assembled.  

This is a horrible infringement on America's constitutional protection of due process and the rule of law which it protects.

The precedent the EPA is trying to establish could provide hostile federal agencies with a new tool for stopping state, municipal, agricultural, recreational, mining, commercial fishing, manufacturing, transportation, home building projects on federal, state, municipal or private land...anywhere, anytime.

Similarly, the Administration has sought, unsuccessfully, to block development in Alaska by proclaiming vast areas should be protected for certain species when the populations of those species are increasing (i.e. Steller Sea Lion, Polar Bear.)

Other federal abuses abound and also work against a predictable and protected due process, though they are more subtle (See "Conversation With Ibrahim",  Fuel StandardsArmed EPA Hits Alaska)

In the case of Keystone, the President has blocked State Department approval of the project following valid, due processes which cleared the project.

Now, when the Congress seems poised to introduce Keystone enabling legislation, the President announces intent to veto any such legislation.  This is more clear and present evidence of willful disdain for the spirit if not the precise definition of due process.

Through such action in the energy business, together with evidence in other federal jurisdictions (i.e. Overreaching Executive Orders, Justice Department-selective enforcement, IRS-targeting non-profits, State Department-Benghazi, etc.), one must conclude the country is dangerously close to losing constitutional freedom and the rule of law reputation for which it was once so well regarded.

Energy company shareholders are among the most affected by a dilution of due process when the rule of law is replaced by rule of men with political agendas.

-dh

The White House warned Tuesday that U.S. President Barack Obama would veto a new Congressional bill to have the Keystone XL pipeline built arguing there is a well-established process to review the controversial cross-border project.

Almost seven years after filing its application for a 830,000 barrel a day oil pipeline, TransCanada chief executive Russ Girling expressed exasperation over the latest setback.

“The review process for Keystone XL has been anything but well-established. We are well over the six-year mark reviewing the final phase of Keystone with seemingly no end in sight,” Girling said in a statement after...  (More here)


Canadian Press/Global News. Jim Prentice, Alberta, Premier, Keystone XL, pipeline, Photo by Dave Harbour Alberta’s premier remains hopeful about the Keystone XL pipeline despite word that U.S. President Barack Obama may veto the project.  Prentice says he will travel to Washington within the next month to let people know that Keystone is in the best interests of Canadians and Americans alike.

Jim Prentice (NGP Photo) says there is broad public and political support in the United States for the pipeline that would carry Alberta bitumen to the U.S. Gulf Coast.


Globe & Mail.  Quebec’s energy regulator is giving the thumbs-up to TransCanada Corp.’s Energy East pipeline, calling the plan “desirable.”

The $12-billion pipeline between Alberta and New Brunswick aims to connect western crude with eastern refineries and new markets across the Atlantic.

It would make use of under-used natural gas pipe already in the ground for about two thirds of the way, with new pipe being constructed in Quebec and New Brunswick.


The Alaska Gasline Development Corporation today released statements in light of Governor Bill Walker’s action firing three board members and ordering his appointees to not participate in the confidentiality process.
 
Alaska Speaker of the House Mike Chenault, (NGP Photo-above), and Rep. Mike Hawker, (NGP Photo-above), believe the
three key AGDC board members were critical in advancing a natural gas commercialization project, and brought valuable perspective and acumen to the Board. AGDC was designed to bring gas to Alaskans and more revenue to the state via its Alaska Stand Alone Pipeline (ASAP) project working parallel to the AK LNG project, which it was facilitating for the State.
 
“I spoke to Gov. Walker after hearing that he had fired AGDC board members Dick Rabinow, Drue Pearce, and Al Bolea,” said Chenault. “The governor certainly has the power to do that; the Legislature granted the governor that power in House Bill 4, which created and directed AGDC. I’m disappointed that Gov. Walker has chosen to eliminate these board members, who have proven their worth and commitment to Alaska in the progress made already.
 
“It’s going to be hard to replace the 60 years of knowledge that these three board members bring – and in particular, the expertise of Dick Rabinow, who is the only board member to have actual gasline construction experience under his belt.
 
“My greatest concern is what delay is this action going to cost the AK LNG and ASAP projects? With a substantial turnover in leadership, how much longer will Alaskans wait for natural gas?”
 
“I am disappointed in the Governor's action gutting the top quality board that was working diligently for Alaska,” said Hawker. “I’m deeply concerned that this signals a wholesale change of course for Gov. Walker on gas commercialization. An overwhelming majority of legislators approved creation of AGDC, and of its mission, which is clear in law – to pursue a natural gas project that delivers gas to Alaskans first,
then to markets beyond.
 
“In creating AGDC, the Legislature carefully weighed the need for confidentiality in some issues with the need for public accountability. The legislature struck a balance between transparency to Alaskans, and the need to protect commercially sensitive information, third-party private company information, and information that, if known, could adversely impact the price Alaskans receive for its gas.
 
“I, too, am gravely concerned that this action by Gov. Walker will result in significant delays to the AK LNG and ASAP projects. All the key business agreements crafted by the State under confidentiality agreements will, by law, be brought back to the legislature for a fully transparent, public vetting and approval.”

TODAY'S Energy In Depth News Links:

Weds., January 7, 2015 

  • EID-National: API’s State of American Energy address and report underscore bright future ahead – if policy-makers do their job (1/6)
  • EID-Illinois: Unlike New York, Illinois is helping its economically challenged regions by moving forward with shale (1/6)
  • Guest post from BakerHostetler: Cuomo’s decision on HF doesn’t appear to be based on science – or the law (1/6)

NATIONAL

API chief focuses on oil exports, KXL in annual addressE&E News (subs. req’d). Throughout his remarks, Gerard touched many times on the need to move forward in approving construction of the Keystone XL pipeline from Canada. Describing that approval as "low-hanging fruit," he expressed disappointment at news that the White House said it would likely veto a KXL approval bill introduced yesterday by Sens. John Hoeven (R-N.D.) and Joe Manchin (D-W.Va.). "The American public is frustrated and confused by this indecision," Gerard said. "They say to themselves, 'Wait a minute, there's 42,000 jobs here and we can't make a simple decision?' So, longer-term, I believe Keystone is ultimately going to get done."
 
Democrats must respect the power of oil and gasHouston Chronicle, op-ed. Oil and gas is no longer a game reserved for Texas wildcatters. Shale can be found easily in blue states and red states, and politicians all along the aisle should have trouble finding bad news in fracking's gifts of job growth, affordable fuel and strength abroad.
 
Industry benefits from transparency about HF fluidsThe Oklahoman, op-ed. Baker Hughes, an energy firm in Houston, is about to make history. It just pledged to disclose the chemical makeup of its hydraulic fracturing fluid. Fracking fluids are safe. And the public deserves to know what goes into them. That’s why I firmly support fracking disclosure laws.
 
Oil prices will recover, but market could behave chaoticallyHouston Chronicle. In a balanced market, however, the oil industry simply cannot produce all of oil the world needs for $50 a barrel or less. That's the good news for Houston, but the bad news is that companies will be under intense pressure to produce oil as cheaply as possible because, since November's OPEC meeting, the world lacks a regulator, or swing producer, to stabilize the market. If left to its own devices, the invisible hand of the market will be stirring a pot of chaos in 2015.
 
U.S. oil production will be falling by end of 2015Reuters, column. In the short term, U.S. oil production is set to continue rising because there is still a backlog of wells waiting for fracturing crews and completion after the record drilling during the first ten months of 2014. In North Dakota, for example, there were around 650 wells waiting on completion services at the end of October 2014 because drillers had outpaced completion crews, according to the state's Department of Mineral Resources.
 
Low oil prices leave U.S. shale players cautiousUPI. Energy companies working in U.S. shale basins announced plans to trim capital programs for 2015 because of the steep decline in oil prices. The price for West Texas Intermediate crude oil, the U.S. benchmark, dipped below the $50 mark for the first time in more than five years Monday. Globally, oil prices have lost half of their value since mid-June 2014, forcing major oil and gas companies to cut back on spending for this year.

INTERNATIONAL

Anti-Cuadrilla group's leaflet misleading, says watchdogThe Independent. In a setback for the anti-fracking lobby, the Advertising Standards Authority (ASA) found that sections of the leaflet from the Residents Action On Fylde Fracking (Raff) protest group misinterpreted scientific data around shale gas extraction and exaggerated the size and scale of planned fracking operations in the region.
 
Junior explorer pulls plug on UkraineUPI. The economic climate in Ukraine is no longer conducive to continue investing in shale natural gas opportunities, producer JKX Oil & Gas said Wednesday. "The board of JKX has decided that the combination of Ukrainian Government-imposed restrictions on selling its gas to industrial clients and the punitive rate of gas production tax requires the company to suspend its planned 2015 capital investment program in Ukraine until the economic parameters for investment improve," it said in a statement.
 
Protests Hit Southern Algeria Over ShaleAssociated Press. Protests in Algeria's remote and sparsely populated south over efforts to exploit the country's vast shale gas reserves spread to the regional capital Tuesday, the state news agency reported.

CALIFORNIA

New report calls for better oversight of injection wellsBakersfield Californian. In a report with strong implications for Kern County's oil industry, an environmental activist group called Tuesday for changing the process for exempting aquifers from federal groundwater protections. An oil industry trade group, the California Independent Petroleum Association, was dismissive of the report, noting there is no evidence of waste being injected into drinking water supplies.
 
COLORADO

5 things to know as the Colorado legislative session beginsAssociated Press. Colorado lawmakers begin the 2015 session on Wednesday. Here's a weekly look at what's coming up: Fracking - Another big debate involves whether any new regulations are needed over hydraulic fracturing, or fracking. Gov. John Hickenlooper assembled a task force to look at how to settle land-use clashes among homeowners, local governments, and the energy industry. The task force's charge is to give lawmakers recommendations, but whether anything happens remains to be seen.
 
Windsor braces for industry slowdownThe Coloradoan. While many Northern Colorado residents are enjoying the country’s falling gas prices, Windsor officials say the anticipated slowdown in tax revenue from oil and gas companies will hamper them this year. Those companies will likely scale back their operations around Windsor, Town Manager Kelly Arnold said during a work session Monday. Fracking activity in the area may not pick back up until 2016.
 
What new fines would have meant in Windsor spillThe Coloradoan. An oil and gas operator who spilled 7,500 gallons into the Poudre River last year would have faced 15 times the financial penalty under a new fine structure passed this week. The Colorado Oil and Gas Conservation Commission approved a maximum penalty of $15,000 a day for "the most egregious violations" in a Monday hearing — up from a previous maximum fine of $1,000 per day. 
 
LOUISIANA

Oil price plunge imperils La. jobs — but when? The Advertiser. In Louisiana, initial claims for unemployment insurance in mining — many oil and gas jobs are recorded as mining — totaled 227 in December, higher than in any previous month but not much higher than claims recorded in January 2014. Guarisco said oil and gas employment appeared to remain robust in December, as many oil and gas jobs must be done no matter the price per barrel.

Denton anti-HF activists to make appearances in St. Tammany ParishTimes-Picayune. Two people whose efforts helped enact a ban on fracking in Denton, Texas, will be in St. Tammany Parish this weekend for a party and a symposium about hydraulic fracturing. The citizens group Tammany Together is putting on the events. 
 
NORTHEAST

Penn students jump into the shale fray with a new technologyNPR. One of the pressing questions regarding fracking is whether or not the chemicals used to help pry the gas from tight rock formations like the Marcellus Shale leaks or migrates to drinking water supplies. Imagine if you could determine whether fracking caused ground water contamination using a thin strip of single carbon atoms. That’s what two seniors studying at both the University of Pennsylvania’s Wharton school and its bioengineering department, are trying to do. Teddy Guenin and Ashwin Amurther are finalists for a $5000 prize through the University.
 
Analyst predicts gasoline rebound despite oil's plungeTribune-Review. Gasoline prices likely will rebound over the next few months and rise above $3 per gallon by May, despite the continuing drop in global oil prices, a national analyst predicted Tuesday. Oil prices driving much of the pump price dropped by half because of increased supply from shale producers, tepid global demand and a decision by exporters such as those in the OPEC cartel to push prices down by maintaining production.
 
US Forest Service accepting comments on Va. pipeline pathAssociated Press. Friday's the deadline to comment on a proposed natural gas pipeline whose route includes the George Washington National Forest. The multi-billion-dollar pipeline is proposed by Dominion Resources and other energy companies. It would run from West Virginia, through Virginia and into North Carolina. The proposed $5 billion, 550-mile pipeline would transport natural gas collected through hydraulic fracturing, or fracking, from Pennsylvania, Ohio and West Virginia.
 
Shale is proving beneficialThe Star Democrat, LTE. In her guest comment, “Fracking may prove to be harmful to public’s health,” Rebecca Rehr presents the potential hazards of hydraulic fracturing without balancing them with the benefits. Of course there are health and environmental hazards to extracting oil and gas from tight shale and other rock formations. However, horizontal drilling and fracking have dramatically increased U.S. production of oil and gas, leading to benefits both here and globally.
 
Natural Gas Price Plummets, But Tax Still a Wolf PriorityPhiladelphia Magazine. States that depend on energy resources to power their economies and budgets are tightening their belts as the prices of oil and natural gas fall, but that won’t — and maybe shouldn’t — stand in the way of a new fracking tax in Pennsylvania, officials say.

OHIO

Natural-gas home-heating rates low for JanuaryCleveland Plain Dealer. Cold January weather has arrived, but rates for natural gas have fallen. Both Dominion East Ohio and Columbia Gas of Ohio are posting standard rates that are lower than those in December and lower than year-ago January prices.
 
Small earthquakes in Mahoning CountyAkron Beacon Journal. Shawn Bennett, of the Ohio Oil and Gas Association, said, “There is no reason for hysteria” regarding the new report. Ohio is working closely with researchers in other states on how “best to mitigate such events from happening in the future,” he said. NOTE: Houston Chronicle/Fuel Fixalso reports.

TEXAS

4 mild earthquakes startle North Texas; no damage reportedExpress-News. Four small earthquakes have rattled North Texas hours apart. No damage was reported from Tuesday temblors. The U.S. Geological Service plotted the epicenters of the four quakes to northeast Irving, a Dallas suburb. At least two could be felt throughout the Dallas-Fort Worth area.
 
Low gas prices means job lossesKENS5. The output of the Eagle Ford Shale, recently slipped for the first time in more than a year. The state reports production at the shale dropped by about 2,000 barrels in December. A local economics professor from UTSA said cheap gas prices could mean job losses since a significant part of the economy is driven by oil and gas production.


Other references "A Deal Is A Deal", etc.:

Do we want to be a place where "A Deal Is A Deal?" (Reference 12345)
Did we elect a Governor and Legislature to solve problems or throw darts at each other (Today's KFQD; pls. advance to Harbour interview: 1520 - 2630)
Categories:

1-6-14 BP Is Major Alaskan Investor and America’s Largest Energy Investor

06 January 2015 10:53am

BP, economic report, alaska production, BP America Chairman and President, Photo by Dave HarbourWe have a new report this morning that: "BP contributes $143 billion to the U.S. economy and supports nearly 220,000 jobs".  In that report, BP America's Chairman and President John Mingé (NGP Photo) writes of Alaska that, " We are spending heavily to continue developing the giant Prudhoe Bay field after selling interests in four other Alaska fields.  We also are working to advance the Alaska LNG project, which will help transport North Slope gas to global markets. Alaska voters supported these efforts by keeping in place a historic tax reform measure that encourages the industry to invest more in the state. -dh

WASHINGTON – BP’s business activities in the U.S. helped generate close to $143 billion in economic impact in 2013 and currently support nearly 220,000 American jobs, according to the company’s U.S. Economic Impact Report 2014.

Released today, BP’s new report provides a detailed, state-by-state look at the breadth and impact of the company’s activities in America. Since 2009, BP has invested nearly $50 billion, making it America’s largest energy investor. In 2013 alone, BP spent $22 billion with vendors across the country on products and services, ranging from offshore drilling rigs to gasoline-producing equipment for its refineries.

"BP operates more fields that produce more oil than any other energy company in the state. (See Canadian Investment here.  -dh)

 Our 13 oilfields on the North Slope (including Prudhoe Bay, Endicott, Northstar and Milne Point), account for about two thirds of Alaska oil production. We also hold the greatest ownership share in the 800-mile long Trans Alaska Pipeline System (TAPS).

"We are also one of Alaska’s largest private sector investors, taxpayers and employers. In 2012, BP Alaska paid $2.8 billion in taxes and royalties and other government payments to the State of Alaska. Furthermore, BP is one of the top 10 employers in Alaska, with 2,300 employees and more than 6,000 contractor jobs."  (From BP Alaska web page.   ALSO, SEE BP COMMITMENT TO VETERANS!  DH

“No energy company has invested more in the U.S. over the past five years than BP,” said John Mingé, BP America chairman and president. “Our investments not only provide the energy to power the nation, but they also support hundreds of thousands of jobs that fuel the economy.”

BP’s business investments in the U.S. include oil and natural gas exploration and production, fuel and chemical refining, lubricants, shipping, trading, renewable energy production and cutting-edge technology research and development. The U.S. also is home to a number of operations that serve BP’s global businesses, such as the Center for High-Performance Computing in Houston, which houses the world’s largest supercomputer for commercial research.

BP produces more than 628,000 barrels of oil equivalent a day – enough to light nearly the entire country. The company’s three northern-tier refineries in Indiana, Ohio, and Washington are together capable of processing more than 742,000 barrels of oil per day. Also, BP’s chemical and lubricant facilities supply materials necessary for modern life, including greases and engine oils marketed under the Castrol brand and chemicals used in fabrics and packaging.

In addition to physical assets and energy production, the U.S. is home to nearly 40 percent of BP’s publicly traded shares and more BP employees than any other nation. The U.S. also is a center for BP research and recruitment. The company will spend $60 million this year on academic research, educational initiatives, and recruitment activities at more than 50 U.S. universities.

At the corporate level, BP contributes more than $30 million a year to charitable and nonprofit organizations such as United Way of America and the National Multiple Sclerosis Society. This includes contributions through BP’s unique Fabric of America program in which BP employees may annually designate $300 of corporate funds to a nonprofit organization of their choice within the United States. Since the fund’s 2007 inception, BP has given more than $26 million on behalf of our employees, helping to support roughly 19,000 organizations in all 50 states.

The investments and spending detailed in the report do not include costs associated with cleanup and restoration activities in the Gulf of Mexico, or claims payments related to the Deepwater Horizon accident.

To view or download BP’s full U.S. Economic Impact Report 2014, please visit this page.    

BP in the U.S. - By the Numbers

* Employees: More than 18,000
* Total Jobs Supported: Nearly 220,000
* National Economic Impact: Nearly $143 billion in 2013
* BP U.S. Investment since 2009: Nearly $50 billion
* Money Spent with Vendors: More than $22 billion in 2013
* Community Investment: $30 million annually

Categories:

1-5-14

05 January 2015 8:54am

ADN by Dermot Cole.  The Alaska Legislature unanimously approved a resolution last April calling upon the Parnell administration to ask the federal government to reduce the "quality bank" payments made by Alaska refineries by Jan. 1, though there was never any strategy, timetable or realistic hope of achieving the goal.

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