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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.  -dh

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3-1-15 Governor Bill Walker Wanted To Kill the ASAP Project Before He Wanted to Strengthen And 'Own' It. -dh

01 March 2015 10:39am

In Today's ADN, Paul Jenkins opines that:  ... "With a pen stroke, Walker switched the board’s focus from pipeline to politics, with a different outlook and differing goals and needs.

"Now, Walker wants to beef up ASAP, the Legislature’s baby, and have it compete with the larger project. ASAP started life in 2010 as a small-diameter, in-state backup to the producer's gigantic Alaska LNG Project to move gas from the North Slope to Nikiski.

"ASAP was bumped up to a 36-inch diameter line, but Walker considered it uneconomical -- even threatened defunding. Now, for whatever reason, he wants to boost its capacity -- and sell gas to Asian buyers.

"While the state owns a minority chunk of the larger project, ASAP allows Alaska complete ownership -- and all the risk. It could sell pieces to other investors -- buyers, perhaps -- but retain control, Walker says."

Categories:

2-28-15 Alaskanomics: All About Oil Prices

28 February 2015 7:52am

Understanding the Current Oil Price Environment- lPart III See Part II and Part I

Mark Edwards, Northrim Bank, Alaskanomics, Oil Prices, Economist, Photo by Dave HarbourPosted: 27 Feb 2015 04:14 PM PST

By Mark Edwards (NGP Photo)

To wrap up our look at the current oil price environment, I show the reasons for optimism and reasons I believe that prices will not go much lower and will rise in the coming year.

Reasons for optimism that Alaska can withstand the current price shock:

  • Deficit spending from savings, coupled with measured, incremental cuts to the state budget should be the fiscal solution that helps Alaska bridge the current low price oil environment without causing broader economic issues.
  • Energy investors in Alaska understand that it takes a decade to explore and permit new oil production.  Then they expect to produce from Alaska’s large fields for two to three decades or more.  They are investing based on long term price averages, not on short-term price swings.
  • Multi-billion dollar developments like Point Thompson, and new projects like CD5, and Site 2S at the Kuparuk River are not going to be stopped due to current price levels.  There are development requirements with their state leases that must be met.  There are expectations prices will be higher by the time this oil will be sold into market.
  • The three largest producers made public pronouncements during the recent election they would support maintaining the current tax system with long-term capital investments in Alaska.  If they backed off from these promises so soon after their efforts were successful they would lose serious credibility with Alaskan voters and politicians.
  • The state government can withstand short term price swings because of our enormous savings accounts.  What is most critical is the length of the price decline.  Sustained low prices for more than a year will start to put serious pressure on government budgets. 
  • The state withstood a similar low price shock only five year ago.  The current prices started to fall in September of 2014 from an average of $96 a barrel for Alaska North Slope crude (ANS), to only $61 a barrel average in December.  During the national recession in 2008 oil prices followed a similar path.  They averaged $102 a barrel in September and fell to a low of only $37.7 a barrel by December of 2008. 
  • The state Department of Revenue predicts prices will average $76 a barrel and $66 a barrel for the next two fiscal years, but return to averages over $100 by 2018.  The U.S. Energy Information Administration (EIA) forecasts prices to rise by this summer and average $71 for West Texas Intermediate (WTI) in 2016.
  • State oil production estimates are positive.  The two decade decline in Alaska is projected to end in FY 2016 with a 15,000 barrel per day increase and then grow again in 2017 to a peak of 547,100 barrels per day due to new fields coming on line.

Clip 1

Reasons to believe prices will not go much lower and rise in the coming year:

 

  • Prices are set by the marginal cost of supply.  In the case of oil the world demands roughly 92 million barrels of oil a day.  In the long-term prices will go no lower than the highest cost producers who supply the last million barrels.  If those marginal producers cannot make a profit they will go out of business and the supply will drop.  This causes prices to increase because demand is not being met by the now shorter supply.  Once prices rise, marginal high-cost producers can re-enter the market.
  • Inventories build up when the supply of oil grows faster than demand.  This is an easy signal to investors in the oil futures market that prices should fall.  In 2013, oil inventories were at the lowest level they had been in a decade.  The price for ANS averaged $108 a barrel that December.  However, the producers responded to over three and a half years of prices above $100 a barrel with a dramatic increase in production.  In 2014, non-OPEC countries like the U.S. added over 2 million barrels per day (bpd) in production.  Global oil inventories added 0.8 million bpd on average in 2014.  This over supply sparked the price declines we have been experiencing.  The U.S. Energy Information Administration (EIA) predicts the inventory build-up will continue for the first half of 2015 at a rate of 0.9 million bpd.  They expect this to taper off by mid-year because marginal producers will not be able to profitably produce at these lower prices.  Companies can only operate at a loss in the short-term by spending savings and using debt financing.
  • The real demand drivers for energy consumption are global population growth and higher standards of living, which lead to more energy usage per capita.  The EIA estimated global oil demand increased by 0.9 million bpd in 2014 and will increase another 1 million bpd each of the next two years.  This is driven by global GDP growth estimates (weighted for energy intensity usage) by 2.9% in 2015 and 3.2% in 2016.  These are both higher than the 2.7% GDP growth experienced in 2014. 
  • Demand growth for oil in the next two years              is being driven by continued gains in consumption from China, India and other under-developed nations.  The U.S. is ending a multiyear decline in demand for oil and is expected to increase consumption by 0.3 million bpd as our economy rebounds from a prolonged recession.  Japan, Europe and Russia are projected to decline oil use due to economic problems.
  • You can see the long-term black trend line in prices on the graph on page one and global demand on the graph on page 6 are both sloping upwards over time despite volatility in the short-run.

Clip 2

  • Non-OPEC countries increased their production by 2 million bpd in 2014.  The EIA estimates this will slow to only 0.7 million bpd this year and decline further in 2016.  Production slowing is predicted in the U.S., Canada, Central and South America.  0.6 million bpd of unexpected supply disruptions have also occurred mainly in South Sudan, Syria and Yemen due to terrorism and political unrest.

Conclusion

Continued growth in global demand for oil, coupled with a higher cost of supply to meet that demand should lead prices higher in the coming year as oil inventories burn up.  Alaska has sufficient savings to offset large current budget deficits.  Needed cuts in state operating and capital budgets will likely create a 2% drag on the economy in 2015.  Current events are always changing, so continued vigilance of this critical economic topic is required.  If prices stay low longer than expected more serious issues could arise.  In the near term Alaska oil production levels should be stable and multi-billion dollar investments from the energy industry are expected to continue through the low price environment.

Categories:

2-27-15 Understanding Oil Prices

27 February 2015 6:29am

See Consumer Energy Alliance's Friday Energy News Links, here.

ALERT - ALERT: Anchorage readers should PLEASE attend Bureau of Ocean Energy Management (BOEM) meeting on Monday.  We hope that the Governor's Office and Legislators are represented--since the subject pertains to keeping the Trans Alaska Pipeline System (TAPS) viable AND assuring the sustainability of South Central Alaska gas supplies!   Details here. 


As Russia moves to cut Ukrainian gas supply, we wonder why the U.S. does not come smartly to the rescue with energy and weapons supplies!  -dh

We urge our gentle readers to review Wednesday's posting; we cannot remember -- in well over a decade -- posting a more useful, relevant and actionable commentary for our Alaskan, Canadian and Lower 48 readers.  -dh


Understanding the Current Oil Price Environment

Part II 

by Mark Edwards, Alaskanomics.  

See Parts I, and III

Posted: 26 Feb 2015 11:40 AM PST

Mark Edwards, Alaskanomics, Northrim Bank, Economist, oil price environment, Photo by Dave HarbourIn Part I, I outlined the background of Alaska's economy in relation to the price of oil and how the current price is affecting the economy. Today, I will show the root causes for the recent decline and will wrap up on Friday with the reasons we should be optimistic for the future.

What are some of the major root causes of the recent price decline?

  • Sustained high prices led to an increase in new exploration investment.  Many previously marginal fields became economically viable at $100, which in turn led to dramatic increases in supply.
  • The U.S. market became a net exporter of energy from a boom in domestic supply coupled with a slight decrease in demand. 
  • More energy intensive manufacturing moved to other parts of the world like China where coal is more prevalent.
  • Technology has reduced the marginal cost of production in some fields and allowed previously uneconomic fields to be produced using new techniques.
  • Saudi Arabia has not supported falling prices like they have in the past by using OPEC to constrain supplies.  They appear to be trying to punish rival Iran, who is more sensitive to prices in their budget, and possibly see a chance to put smaller high-cost producers out of business to recapture market share.
  • The U.S. dollar strengthened against a global basket of currencies last year.  Oil is traded globally in dollars, so a strengthening dollar allows you to buy the same amount of oil for a lower price.
  • Global economic concerns have led to lower world GDP expectations and therefore lower oil demand growth in the future.  The European economy is still fragile, Japan has been stagnant for  two decades and China is seeing slower growth rates.  Weakening US power, turmoil in the Middle East and Russian aggression have added to the instability in global trade (Our emphasis added.  -dh).

    Regional BOEM Public Affairs manager, John Callahan, sends us this notice for a Monday meeting in Anchorage which our readers should attend if possible:

Our agency has a public scoping meeting in Anchorage Monday night. Rather than glaze your eyes with a bunch of jargon I thought I would just try to really clearly lay out what it is about.
 
1. The Bureau of Ocean Energy Management (BOEM) is responsible for managing oil and gas resources on the Outer Continental Shelf.
 
2. As part of that, BOEM is required to develop a five-year schedule of lease sales designed to best meet national energy needs.
 
3. BOEM has started developing this plan for the years 2017-2022. A DRAFT of the plan is available here: http://www.boem.gov/2017-2022-DPP/ [PDF]. This draft proposes holding three lease sales off the coast of Alaska -- one each in the Beaufort, the Chukchi, and Cook Inlet.
 
4. BOEM now needs to prepare an Environmental Impact Statement (EIS) to analyze the potential environmental impact of the draft plan.
 
5. On Monday, March 2, from 3 p.m. to 7 p.m. at the Anchorage Marriott Downtown Hotel, BOEM will hold a public scoping meeting to get public input as to what the scope of this EIS should be.
 
In other words, agency analysts are looking for input like:
 
* "When you prepare the EIS, be sure to take a close look at the impact on species X"
 
* "In the draft plan, we see that such-and-such an area would be open to leasing. Be aware that part of that area is an important subsistence use area for local residents"
 
* "I believe that areas [A,B and C] should be removed from consideration for exploration, for the following reasons..."
 
Everyone is invited! We hope to get a good mix of input from environmental groups, industry Alaska Native organizations, etc.
 
Much more information about this is available at: http://boemoceaninfo.com/
 
Thanks! And, of course, I am happy to answer any questions about this you may have.
 
John Callahan
BOEM Public Affairs
Alaska OCS Region
 
==============PSA ================
 
The federal government would like your input. Regulators are writing an environmental impact statement to look at the potential impacts of future offshore oil exploration. On Monday, from 3 to 7 pm, they will host a public meeting at the Marriott Hotel in Anchorage. Everyone is invited. More information is available at:  boemoceaninfo.com [B-O-E-M ocean info dot com]           

Today's weekend energy links from Consumer Energy Alliance:

CEA's The Energy Voice: Bill Gates Weighs in on Energy Research
When Bill Gates gets involved, you know it’s serious. That’s why we were glad to see Microsoft founder and billionaire philanthropist pounding the lectern over the need for more funding in energy research.
 
Associated Press: Nebraska Judge Agrees to Halt Condemnations for Keystone XL
A Nebraska judge has issued a temporary order to stop a Canadian company from seizing access to land in one eastern county to build the Keystone XL pipeline.
 
Business Insider: Obama vetoed the Keystone XL pipeline, but here's why approval is still possible
President Obama used his veto power on Tuesday for just the third time in his administration, sending back to Congress legislation approving construction of the Keystone XL pipeline, which would transport 800,000 barrels of oil per day from Alberta, Canada to refineries along the Gulf Coast.
 
Bloomberg: Alberta in Talks on Climate Policy with Eye to Keystone Approval
Alberta is in talks with other Canadian provinces and U.S. states to cooperate on climate and environmental policies as it seeks to improve the reputation of its oil sands and win approval of TransCanada Corp.’s Keystone pipeline.
 
CBS News: Keystone XL Veto Could Make a Case against Fracking
President Barack Obama recently vetoed a bill approved by both Congress and the Senate to build the Keystone XL pipeline, an oil pipeline system commissioned to transport oil from Canada and the North Dakota Bakken Shale region to Midwest and Gulf Coast refineries.
 
Town Hall: Obama's Veto of Keystone Pipeline Is All About Politics
In the days leading up to President Obama's veto of the Keystone XL pipeline, 14 oil tanker railroad cars derailed in West Virginia and exploded in a fiery environmental disaster.
 
Oil Price: Keystone XL Saga May Not Be Over Yet Despite Obama Veto
President Obama’s veto of legislation that would have allowed construction of the Keystone XL pipeline was directed only at the bill itself and doesn’t necessarily mean he wouldn’t eventually authorize construction of the project itself.
 
The Advocate: Our Views: Obama’s Keystone veto unjustified
Ordinarily, we’d be somewhat sympathetic to President Barack Obama’s stated position on the construction of the Keystone XL pipeline, as it is a matter of a president’s prerogative on foreign policy.
 
Harvard Political Review: Does the Keystone Pipeline Veto Matter?
On Tuesday, President Obama vetoed a bill that would have approved the Keystone XL pipeline. The pipeline is known more than anything for the debate it has stirred between Republicans and environmentalists. While Republicans largely support the measure as a job creator, environmentalists condemn it as a threat to our atmosphere and climate because of the potential for larger amounts of greenhouse gas emissions.
 
The Post and Courier: Override Obama on Keystone
President Barack Obama’s veto of the Keystone XL Pipeline bill Tuesday didn’t come as a surprise. But his latest rationalization for continuing to oppose the project was, to put it mildly, perplexing.
 
National Journal: Moderate Senate Democrats Defy Obama on Keystone
At least seven Senate Democrats say they will thumb their nose at the White House and vote to override President Obama's veto of the Keystone XL pipeline bill. Although it will still leave GOP leaders short of the 67 votes they would need to overcome the veto in the Senate, the continued defection of moderate Democrats shows it will be difficult for Obama to keep his party together for energy and climate fights later in the year.
 
Politico:  NAFTA’s specter may haunt Keystone verdict
President Barack Obama may decide to kill Keystone XL for good, but that could be no easy task — thanks in part to the North American Free Trade Agreement.
 
The Bellingham Herald: Senate bill would look to install crude oil pipeline across Washington State
A state senator introduced a bill today that would require Washington to look at building pipeline to move crude oil through the state. “We need to move oil across our state and there is a lot of concern about oil-by-rail,” said Sen. Michael Baumgartner, R-Spokane, in an announcement Wednesday, Feb. 25. “It’s time to look at a trans-Washington oil pipeline.”
 
Reuters: Oil cash crunch to squeeze rigs, operators out of business
Offshore drilling rig operators are facing a cash crunch as oil firms hold back work and the shakeout will put vessels and possibly some operators out of business, Claus Hemmingsen, chief executive of Maersk Drilling, said.
 
E&E Publishing: Western regulators, utilities call for more time to implement EPA's Clean Power Plan
U.S. EPA proposed an unreasonable and costly deadline for states to begin reducing global warming emissions, according to utility officials and regulators in Western states who testified here yesterday before the Federal Energy Regulatory Commission.
 
The Wall Street Journal: Gas’s Drop Drives U.S. into Deflation Territory
The U.S. in January saw its first dip in overall consumer prices in more than five years. But the economy is far from the precipice of debilitating Japanese-style deflation.
 
UPI: U.S. crude oil production holding steady
U.S. crude oil production for the week ending Feb. 20 held steady amid rig count reductions and planned cuts in upstream spending, federal data show.
 
CNBC: Are oil producers running out of closet space?
Oil supply running ahead of demand hasn't just pressured prices, it's also filling up storage space, potentially pushing crude toward another leg down.
 
Fuel Fix: Halliburton exec: “Boom town” costs falling amid oil slump
In places like West Texas and North Dakota, “boom town costs” like company-paid housing and a commuter workforce that’s burning air miles are starting to wind down as drilling rigs retreat from surging shale plays, Halliburton’s president said Tuesday.
 
Bloomberg: U.S. Oil Discount Poised for Record Widening
U.S. crude’s discount to European prices headed for a record widening in dollar terms this month as prices at $50 a barrel failed to slow the nation’s fastest oil output in more than three decades.
 
The Hill: Greens petition California to ban HF
Dozens of environmental groups filed a legal petition Thursday asking California Gov. Jerry Brown (D) to ban hydraulic fracturing for oil and natural gas in the state. The groups said their case is bolstered by recent news that oil and gas drillers were allowed by the state to inject wastewater from 140 wells, some of which were fracked, into protected waters.
 
Associated Press: Group Backs off Plan to Put Shale Ban on Colorado Ballot
An activist group on Thursday backed off its earlier announcement that it would to try to get a statewide ban on hydraulic fracturing on the Colorado ballot and said it would instead try to persuade Gov. John Hickenlooper to halt the practice. Karen Dike of Coloradans Against Fracking said the group has not ruled out a campaign to put a ban on the 2016 ballot if the governor doesn't act.
 
Denver Post: Colorado oil and gas task force ideas worth enacting
The rap on the much-anticipated recommendations from a state oil and gas task force is that they're not substantial and will do little to resolve conflicts between communities and the industry. Frankly, that's a cynical and unfair assessment. It fails to recognize the balance of interests at play and the power of collaboration at the front end of planning for oil and gas operations.
 
The Coloradoan: Don't be deceived; learn facts about oil and gas
The debate over oil and gas development in Windsor has escalated lately as more activity has moved into the area. As former state representative for Windsor, I encourage local residents to learn more about this vital energy industry that is providing jobs for people in Windsor and across Colorado, and that is also finally making our nation energy independent.
 
CBS DenverShale Task Force Sets the Starting Bell for Ballot Issues
The much maligned oil and gas task force that Governor Hickenlooper put together last fall to keep fracking ballot issues off the 2014 ballot finally submitted proposals to the legislature this week. The nine proposals range in scope but all attempt to address the chasm between local communities and oil companies.
 
Denver Business Journal: More Colorado companies plan capital spending cuts
More energy companies with Colorado ties have announced budget cuts nationwide and in the state as low crude oil prices continue with no end in sight. Crude oil prices for the U.S. settled Thursday at slightly more than $48 per barrel, the lowest level in a month and a far cry from the $100 per barrel prices seen last summer.
 
Patriot-News: New York town to find a way to frack despite state ban
This town of 5,000 people situated near the Pennsylvania border and directly over one of the richest deposits of the gas-laden Marcellus Shale formation is moving forward with ordinances that would clear the way for fracking. Yes, that is right, Windsor Town officials are planning to approve fracking - "gas and oil development," as they term it - despite New York Gov. Andrew Cuomo's fracking ban, issued late last year.
 
Pittsburgh Post-Gazette: A severance tax would set back Pennsylvania
Pennsylvania is the showcase for economic benefits from the Marcellus Shale boom. Witness the impact of natural gas production on job growth. It has led to the creation of a wide range of jobs — petroleum geologists and engineers, roughnecks, welders, steamfitters, laborers, computer specialists, truck drivers and hotel and restaurant workers.
 
NPR: Pennsylvania’s effective tax rate on drillers is declining
Even though revenue from Pennsylvania’s gas impact fee has generally ticked upward over the years, the annual effective tax rate on Marcellus Shale drillers has steadily gone down– that’s according to a new analysis released by the state’s Independent Fiscal Office. The IFO is modeled on the U.S. Congressional Budget Office and provides nonpartisan analysis for budgetary purposes.
 
Akron Beacon Journal: Oil production jumps 18.1 percent, natural gas 25.6 percent
During the fourth quarter of 2014, Ohio’s horizontal shale wells produced more than 3.5 million barrels of oil and nearly 165 billion cubic feet of natural gas, according to figures the Ohio Department of Natural Resources released Wednesday. Oil production from 779 horizontal Utica wells increased by more than 545,000 barrels, up 18.1 percent, and natural gas jumped by more than 33 billion cubic feet, or 25.6 percent, compared to the third quarter of 2014.
 
Youngstown Vindicator: Columbiana County tops Valley oil and gas production
Columbiana County is the 2014 winner for Mahoning Valley oil and natural gas production. The county produced 21.3 billion cubic feet of natural gas and 172,388 barrels of oil in four quarters last year, according to data released by the Ohio Department of Natural Resources.
 
Wheeling News-Register: Ohio Gov. Kasich’s Proposal to Taxes Criticized
As Ohio's oil and natural gas drillers slam Gov. John Kasich's plan to raise severance taxes on their activities, at least one legislator believes the governor wants to redistribute the wealth generated in the shale fields of Belmont, Jefferson, Harrison and Monroe counties throughout the state.
 
Akron Beacon Journal: Antero to cut back on drilling in Utica region
Colorado-based Antero Resources Corp. told financial analysts and the media Thursdaythat is expects to cut back on its Utica Shale drilling by 36 percent in 2015.The company, a major player in Ohio’s Utica region, intends to spend $1.6 billion for drilling and completions in 2015. A year ago, the firm earmarked $2.5 billion for such drilling.
 
Express-News: The top oil-and-gas producing counties in Texas
Six of the top 10 oil-producing counties in Texas are in the Eagle Ford Shale, according to recent data from the Railroad Commission of Texas. Texas in December produced around 2.3 million barrels of crude oil daily. That’s up from a daily average of 1.8 million barrels in December 2013.
 
Midland Reporter-Telegram: Pain will be a reality in Midland, but not for long
The downturn in the oil industry will cut into Midland’s economic success, but as in the past, the economy and the oil industry will come back, said economist M. Ray Perryman, president and CEO of The Perryman Group. Perryman spoke Wednesday to a packed house at Odessa Country Club, addressing concerns about geopolitics, stability in the oil industry and how the American oil industry has changed the landscape domestically and internationally.
 
Austin Business Journal: Energy, immigration collide at Texas-Mexico conference
The ongoing drumbeat of Texas leaders' demands that the Obama administration pay to secure the Texas-Mexico border came close to derailing the message of a two-day conference in Austin to share best practices in the energy and technology sector. Mexico's new president Pena Nieto is pushing a progressive multi-sector business reform agenda, including passage of legislation that will bring private investment to the country's energy sector for the first time.

Categories:

2-26-15 Please Review Yesterday's Commentary

26 February 2015 7:17am

What's next for Keystone XL?


We urge our gentle readers to review yesterday's posting; we cannot remember -- in well over a decade -- posting a more useful, relevant and actionable commentary for our Alaskan, Canadian and Lower 48 readers.  -dh

Alaskanomics by Mark Edwards.  

Understanding the Current Oil Price Environment - Part I  (See later Parts II and III)

Mark Edwards, Economist, Northrim Bank, Commonwealth North, Oil Prices, Photo by Dave HarbourOver the next couple of days, I will post a three part series about the current oil price environment in Alaska.

It is well known that Alaska’s economy is highly sensitive to the price of oil.  Billions of dollars in investment capital flow into the state each year as energy companies both explore for new oil and maintain their existing fields.  This activity has an enormous positive multiplier effect on the rest of the economy as major service industries including trucking, construction, finance, legal, engineering, retail and countless others see a direct benefit from the contracts and employment required to support this massive effort.   Read more....


 

 

Categories:

2-25-15 We Are Optimistic That Good Intent Will Win The Day Over Daunting Challenges!

25 February 2015 4:22am

We Are Optimistic That Good Intent Will Win The Day Over Daunting Challenges!

A tale of two pipelines and two chief executives: President Barack Obama and Governor Bill Walker

by

Dave Harbour  (Note: By Friday more links, references and other minor modifications will be added for archive purposes.)

Bill Walker, Alaska Governor, Barack Obama, Comparison, freedom, Photo by Dave Harbour, gas pipelines, oil line, agdc, asap, AkLNG, Keystone xlResultado de imagen para image, barack obamaWe must be optimistic!  After all, who wants to even contemplate the bankruptcy of Alaska or the destruction of America's way of life?

So in our Churchillian way, we will never, never, never, give in to pessimism and will fight to the bitter end…and overcome!

In doing so, like in actual war, we must count on our countrymen, the ones on either side of us sharing wet foxholes and stale food; the ones who watch as we sleep, with whom we share intimacies; the ones who would defend us then die or watch us die before each other’s eyes...and, the ones we have chosen to lead us.

So as Alaska strains to regain a sustainable economy, we believe that the best intent of our leader and his actions will pave the way to happy days again.

And we can see a brighter future ahead for the United States as we and our fellow countrymen feel our way through the morass of:  anti-energy rhetoric, stifling regulations, oppressive taxation, wildly expensive litigation at every turn, unpayable debt, coffers filled with fiat currency, diminished morals, a flatulent economy buoyed up on false assumptions and its declining military capability.

ALASKA

Our Alaska leader is a charismatic speaker and compelling character.  He was born in the state, is of humble and self-made background.  He is a survivor of the 1964 earthquake and Valdez Tsunami and successful attorney.  No one can doubt his singular focus on producing income for his family while following a lifetime dream to create a (Preferably government controlled) gas pipeline and LNG export project.  Readers might research the history of Organization for the Management of Alaska’s Resources (i.e. OMAR) and the Alaska Gasline Port Authority (Dubbed the “All Alaska Gas Pipeline”).  Walker’s history cannot be distinguished from the development of these organizations: cloaked in patriotic “all Alaska”, sometimes anti-Canadian, often anti-producer terminology, proudly plodding a path independent of the traditional business community, political parties and natural resource investors.

Governor Wally Hickel, Alaska, Howard Boyd, El Paso, OMAR, Dave Harbour PhotoGovernor Bill Walker speaks of Alaska as an "Owner State", hearkening back to Governor Walter J. Hickel's (NGP Photo) terminology.  We are convinced along with a majority of Alaskans that these two men have both had the state's best interest in mind.  Others reasonably think of "Owner State" as a socialist concept involving control from the top elite, redistribution of wealth, big government, high business taxes, and hostility to business owners (i.e. bourgeoisie). 

To those doubting his intent, the newly elected governor famously said in one of his first public speeches to a business gathering, as governor-elect, “I am not your enemy”.  He added, somewhat reassuringly, “You can’t be anything but pro-oil development in this state to be a successful governor in this state.”  We do see the point that while some may view the “state” (i.e. however that is defined) as the primary beneficiary of public policy, others might be concerned that “freedom of the citizens” should be the highest public policy priority—and not secondary to the “state”.

Governor Walker seems to be a man of intuition.  He acts on what he believes at the time out of good intent: to lead an Owner State.  This quality of flexibility led him to first file for public office as a republican, then gather a large democrat constituency by switching to an independent affiliation.  It was a crafty move that won him the governor’s office.  Walker had much of his original republican support base plus new, liberal voters who liked his pro-oil tax rhetoric, pro-government ownership theme, pro-social program expansion (i.e. Medicaid). 

He campaigned on cutting the state’s budget to a sustainable level, but facing the realities of office promoted only modest cuts to the Legislature.  As a campaigner, he generally supported the larger AK-LNG project involving the state, producers and TransCanada while opposing a smaller, Alaska Gasline Development Corporation (AGDC) alternative created by the Legislature and supported by Governor Parnell. Once in office, he replaced highly experienced AGDC board members with inexperienced citizens saying that their major qualification for service was that they were, “Alaskans”.  He then proceeded to switch his support, proposing a strengthening of the 100% government owned AGDC alternative as a competitor of the joint AKLNG project consortium which included the state.

We would note that while Walker qualified his inexperienced gas pipeline board appointees by dubbing them, “Alaskans”, he might also have said the same of himself. 

With his youthful experience as Mayor of Valdez and most of his legal career devoted to promoting an “All Alaska” gas pipeline, it could be said that his major qualification for leading thousands of state employees, governing wisely, representing Alaska to the world, negotiating in good faith with lawmakers and investors alike, is that he, too, is “an Alaskan”--

We have also written fairly extensively about a government controlled effort to finance and build for the community of Fairbanks a natural gas utility supplied by LNG from the Alaska North Slope.  During the campaign, Walker opposed the project of the previous administration.  At about the time of the election, the major contractor reported that the scheme to bring LNG from the North Slope via LNG trucks to be regasified and injected into a to-be-constructed, Fairbanks  gas distribution system was uneconomic.

After he was elected, the government agency responsible for developing the failed Fairbanks LNG project, announced that, “In conjunction with Governor Bill Walker…,” the Fairbanks LNG project would be refashioned into another Fairbanks LNG project, this time obtaining its gas source from the Cook Inlet area.  No one explained why using the Agency (i.e. Alaska Industrial Development and Export Authority “AIDEA”) that created a failed Alaska North Slope LNG project for Fairbanks would be successful in designing and constructing a feasible Cook Inlet LNG project serving Fairbanks.   Neither AIDEA nor the Regulatory Commission of Alaska, to our knowledge, has considered the potential negative impact a Fairbanks LNG project would have on Anchorage natural gas consumers as competitive demand for the limited Cook Inlet gas supply will undoubtedly lead to higher Cook Inlet gas prices.

Earlier this week, we wrote that while we wished the new governor well we, “….hoped there was not a screw loose somewhere.” 

On the bright side, we can see how dogged determination and flexibility led Bill Walker to the governor’s office.  On the other side, we could be concerned about the wisdom of his decisions affecting the future of both the big Alaska LNG export project and the government coordinated Fairbanks gas utility experiment.

Here, Walker seems determined to have the government-owned AGDC project control the destiny of Alaska North Slope gas.  Over there, he seems determined to have the power of government force feed the economics of a small, interior Alaska city gas utility.  Between the two efforts, billions of dollars are at stake along with the economic health and future of the state.

These scenarios are playing out at a time when Alaska is the highest per capita spending state in the nation and the highest per capita debtor state in the nation.  One might say, “Well, but Alaska has few people and a lot of territory to cover.” 

That excuse for high per capita metrics might be convincing when there is plenty of money.  But Alaska’s operating budget is 90% dependent on declining Prudhoe Bay oil production as is over a third of the state’s entire economy.  Even with high oil prices last year (i.e. Over $100/bbl), the state was balancing deficit spending from its savings accounts.  The low oil price environment now finds the state’s savings,  this coming summer, to be in the $9 billion range whereas its Alaska state employee retirement account has an unfunded liability of almost $10 billion. 

The governor’s campaign focus on cutting operating budget spending to a sustainable $5.2 billion has faded and the majority of legislators seem unwilling to become the champions of spending restraint—even as the fiscal cliff approaches.  We regard this lack of leadership to flow from moral weakness: fear of loss of future legislative leadership positions, popularity, support, elections. 

Yet, we must remain optimistic that out of a republican led house and senate there will arise true leaders, true diplomats, true patriots who will work with (or, against)  the Governor to create a sustainable spending plan—no matter the political or personal fallout!

The low oil prices have also put a squeeze on oil production.  Naturally, oil companies worldwide are spending less on capital projects with oil at $50/bbl than they were when it was twice as valuable.  That phenomenon will exacerbate the drop in Alaska revenue from taxes and royalties over time, hastening Alaska’s coming day of fiscal reckoning.

We are left with no choice but to be optimistic.  Yes, we are realistic and understand the challenges.  But a majority of Alaskans elected Bill Walker to lead them out of the wilderness of insolvency to a new day of prosperity. 

We must be optimistic that our “All Alaska” governor has the insight, courage, wisdom and grace to be both humbled at the challenges he faces and capable enough to overcome them.  We are also optimistic that Walker’s propensity to be flexible will enable him to reverse course if he sees the ship of state headed toward rocky shoals.

United States

Just as we are optimistic about the good intent of Alaska’s leadership to overcome daunting challenge, so are we optimistic that the citizens of the United States can overcome the debilitating policies and actions of the person they elected as their president, twice.

Some say that the lawyer, professor, politician, community organizer who became President of the United States is incompetent.  On the contrary, we have followed his administration closely and believe him to be highly competent in achieving his goals. 

When he first ran for office, he promised to engage in “Fundamentally transforming the United States of America”.   We believe that none of his armies of excited supporters ever asked, "transform into what"?    A campaign slogan was, “Change we need”.  What kind of change?  To his constituency, these were powerful, emotional draws, though ill defined, similar to Governor Walker’s reliance on “All Alaska” themes.   Obama also admitted that his plan would cause utility rates to “Skyrocket” but we think most of his constituency may have felt shielded from those by 'LiHeap' and other federal subsidies.

Killing the Keystone XL Pipeline project is a good, contemporary example of "redistribution of prosperity." 

This project was supported by a majority of citizens.  It had regulatory support from the Obama State Department, since it would cross international boundaries.  It also had support from a few but not all unions.

And, it had the dedicated opposition of the entire, North American environmental community.

Killing Keystone meant killing 40k free enterprise jobs while creating six years worth of enormous fundraising cash flows for coffers of environmental activists.

In past years, the State Department professionals would have a legal record that supported approval and that would have been that: it was, simply, in the public interest.

But this administration's strategy of "prosperity redistribution" left no room for a public interest decision.  

This is why the current administration is also presiding over the corruption of America's traditional reliance on an even handed rule of law!

Since taking office, virtually every White House action has been carefully engineered to “redistribute prosperity” for political gain. 

The Administration has designed its programs to create prosperity for those supporting a big government, liberal regime and to pull the floor out from under those depending on private sector employment. 

This is not incompetence.  It is a highly competent operation designed to increase wellbeing -- and numbers-- of political supporters and undermine the wellbeing -- and numbers -- of political opponents. 

The President has faithfully executed his campaign promise of, “Fundamentally transforming the United States of America”. 

Today, we think it might be difficult to impossible, for even the White House's most fervent supporters, to discover more than a couple of major White House initiatives which have actually been designed to support traditional American values, culture, and the rule of law. 

Following are a few examples of the harmful changes to America’s values, customs and even the rule of law in support of the “redistribution of prosperity” strategy described above:

  • Energy and Environment
    • White House failure to approve Keystone XL pipeline in spite of overwhelming public support, greater energy independence, tens of thousands of private jobs, a positive environmental report from the State Department, improved relations with America’s largest trading partner, Canada.
    • Refusing to negotiate a favorable outcome and being 100% inflexible concerning the Keystone XL and other energy projects while negotiating weak US positions and outcomes against Russian imperialism,  Islamic Terrorists and countries supporting them.
    • EPA acting unconstitutionally, to preemptively disapprove an Alaska mining project being planned on Alaska state leased lands before the project had completed a mining plan or filed for even one mining permit with state or federal agencies.
    • USFWS acting with the White House to, de facto, apply wilderness status to ANWR’s 1002 area, designated by Congress for potential oil and gas exploration, without an act of Congress (i.e. violation of ‘no more’ clause of ANILCA).
    • BLM acting with White House support to restrict half of the Nation’s petroleum reserve in Alaska from petroleum exploration and development.
    • Corps of Engineers and EPA acting to block ConocoPhillips from reasonable infrastructure development in accessible portions of NPR-A.
    • Federal Government failing for decades to clean up federal government oil spills created by its own operations in the NPR-A…then demanding special funding from Congress to clean up messes as it should have done decades earlier.
    • Unrestrained and unreasonable application of the ESA throughout the western United States primarily aimed at blocking energy projects.
    • Creating a ‘war on coal’ which six years ago provided 40% of the nation’s electricity and the lowest cost electricity for American consumers.
    • BOEM and many other agencies providing ‘community outreach’ and other support to the White House’s Ocean Policy Task Force, thus unlawfully using money designated by Congress for one purpose to another purpose not approved by Congress.
    • Designating Critical Habitats under the ESA when species were not ‘endangered’ and whose populations were increasing (i.e. Steller Sea Lions and Polar Bear)
    • Using the EPA’s flimsy application of the CAA to stop Shell’s Arctic exploration of lawful, Federal leases
    • Sending EPA armed storm troopers into interior Alaska to look for non-existent CWA violations in mining camps
    • Using the Corps of Engineers to forward White House environmental agenda in conjunction with the EPA in on-shore areas (i.e. CD-5, Yukon River Bridge, etc.), rather than providing citizens with simple, agenda-free access to due process.
  • National defense
    • Using the U.S. Coast Guard to forward White House environmental agenda in Alaska’s waters when other Arctic nations are using their military forces to expand and protect Arctic jurisdiction for an area containing 20% of the world’s remaining oil and gas reserves.
    • Creating false ultimatums (i.e. red lines) for Syria and for Iran’s nuclear programs while ignoring the cries of mercy from Christians and other minorities under attack by ISIS.
    • Disrespecting White House military aids
    • Culling the ranks of loyal Generals and Flag Officers
    • Denying Purple Hearts for those killed or injured on base by Islamic terrorism
    • Giving aid and comfort to the enemy (Article III, Sec. 3, U.S. Constitution):
      • Engaging in treacherous and one sided terrorist prisoner exchanges resulting in unjustifiable release of some of "the worst of the worst".
      • Giving citizen rights to incarcerated terrorists
      • Publicly announcing plans for military operations
      • Publicly announcing plans for retreat from Iraq and Afghanistan
      • Releasing some of "the worst of the worst" terrorist detainees by executive fiat when the administration expects at least 30% to return to the battlefield, seeking to kill Americans and their allies.
    • Threatening the Ukraine’s destruction by failing to provide military aid or energy support to the NATO candidate.
  • General
    • FCC Commissioner Mignon Clyburn, Anchorage Visit, Net Neutrality, Photo by Dave Harbour“Fundamentally transforming the Internet” by having the FCC promulgate rules in secret to create government controls over that traditional, ubiquitous medium of free expression.  (We appreciate the courage of our friend, Democrat FCC Commissioner Mignon Clyburn (NGP Photo), who has second thoughts and could be the swing vote on this massive overreach orchestrated in large part by an overreaching White House.  The five commissioners vote tomorrow.)
    • IRS targeting of opposition, not-for-profit groups
    • Federal monitoring of AP
    • Federal targeting of Fox News
    • AG dropping charges against voter intimidation by black terrorist group
    • Federal non-enforcement of immigration laws
    • Irresponsible release of thousands of detained and incarcerated illegal aliens, a significant number of whom are convicted murderers, rapists or felons in general.
    • Irresponsible seeding of illegal aliens, including children, into cities throughout America without regard to educational, social, financial or communicable disease impacts on citizens.
    • Stimulus spending projects designed to funnel hundreds of billions of dollars into the coffers of the administration’s corporate and labor supporters
    • Unrestrained and unsustainable spending
    • Devaluation of U.S. currency over time (i.e. although in a world of QE, the dollar is the best of the worst currencies, for a time at least)
    • Continual stimulation of racial unrest in black communities by the AG and the President (i.e. Sharpton’s dozens of White House visits.)
    • Transformation of College Loan Program from private sector management to federal bureaucratic management.

We could go on and on.  And, we suspect our faithful readers could as well.

However, we now wish to end on our optimistic note:  that the pent up power of freedom, of the determination of America’s people to ‘do or die’ will overcome a breathtakingly competent socialist takeover of America’s government, culture and political structure.

Since optimism leads to action which leads to success, we also encourage our dear readers to carefully consider the old analogy.  The frog put in a pan of cold water does not realize he is cooked while the water temperature is slowly increased to boiling.  America is entering the boiling stage now.  Will citizens even realize the change that has enveloped their constitutional republic? 

Or will complacency lead to inaction, acceptance and a slow but sure end to our way of life?

We are optimistically betting that, soon enough, our collective psyche will awaken both to Alaska’s daunting challenges…and the duty to recapture America’s values, culture and rule of law traditions.

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2-24-14 Australian Investor Comments On Governor Walker's Gas Project Rhetoric!

24 February 2015 5:57am

TransCanada's Keystone XL:

Australian Investor Speaks!


Our Northern Gas Pipeline (NGP) friends will want to tune in today to Alaska legislative video conferences dealing with

1) AIDEA financing of an Interior Energy Project (10:15 ADT), and

2) Hilcorp discussing Cook Inlet gas/North Slope projects and operations (12 Noon, ADT)  

...  

Letter from a reader: Dave:  Thank you very much for having provided the opportunity to present to the public the example of injustice that the Orange Hill Taking exposes.  Your description of the “War On Alaska’s Future” is excellent.    More here (2-24-15)....


Yesterday, we opined that, We  continue to wish Alaska's new governor well, but hope there's not a screw loose somewhere....

Today we decided to further refine the story and that will take us another day.  
 
In preparing to critique it, we urge our gentle readers to review yesterday's references and to those we add two more today:
 
1.  Please review our earlier commentary, "It's Our Oil And We Are Sovereign, By Golly!"
 
2.  One of our most astute readers is a natural resource investor from Down Under--not associated with the large Alaskan producing companies.  
 
Being a private, individual investor interested in Alaska and being a firm believer in "due diligence" he has rigorously analyzed Alaska as an "investment climate" for several years.  
Last night, our friend penned his own commentary (right hand column) which we  appreciate his having shared with us.
 
His unsolicited, personal views may reflect a number of sophisticated investor views everywhere.
 
We hope that by honestly and publicly discussing these matters Alaska's new governor may yet become successful and and that the state can avoid any critical, politically caused, train wrecks.  -d

A commentary written by our Australian investor friend to his friends and colleagues in Alaska (Please read in conjunction with our 3-1-12 commentary):

Dave,

I was minded to put fingers-to-keyboard by your Governor’s recent comments on the Alaska LNG and Alaska Gasline Development Corporation projects (AKLNG and AGDC, Aka., ASAP).

They sounded very much like one hears all the time in developing nations: “We are the owners, blah, blah, blah."

Of course, he misses the point here: the State is the freehold owner but it has leased its rights to extract to others on a long term basis, sufficient for those others to book reserves and contingent resources in connection with those extraction rights.

In developing nations it is often easy to understand the motivations of the political leaders who say such things.

Their statements are usually a combination of not being well educated in international commercial and legal matters (and who can blame them) and because they see an opportunity to personally profit from a State’s resources.

I would strongly presume neither motivation applies to Walker, who no doubt is merely (i.e. in his own mind) undertaking a minor political tactical play in connection with appointees to AGDC, etc.

However, does he not realize that LNG projects compete on a global basis and although AKLNG has leapt up the league tables over the last 18 months, its chances of achieving FID are reduced by playing petty politics?   (See our commentary on LNG global competition: 1, 2, 3 -dh).

It is of course a complete joke to think that the State of Alaska could by itself somehow “procure” (expropriate?) gas from the Producers and then sole fund, build and market its own LNG project. That's the sort of thing the Government of Mozambique might say. 

Anyway, I expect the Producers to just sigh and get on with things - with however another minor reservation in the back of their minds.

Cheers,

(Signed by our Australian friend....)

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