|Our Alaska BP friend, Julie Hasquet, notes the launching this week of, "BP's inaugural, Technology Outlook. Readers may obtain a copy here. -dh|
Our Washington D.C. friend with IER, Dan Kish, notes that House democrats have filed this bill targeting an Alaska oil & gas prohibition in Cook Inlet and the Arctic -- not to mention coal. Founded on the religious belief in a concept called, Global Warming, the bill (i.e. called the "Keep It In The Ground Act Of 2015") is being filed as in concert with other Paris Climate Change preparations by the U.S. President, including disapproval of the Keystone XL project. We assume Alaska's Congressman Don Young is on top of it. Unbelievable how so many could appear to love their country's economy, civilization, standard of living and culture so little. -dh
For gas pipeline and LNG export planners, the EIA reports: Winter natural gas futures prices are significantly lower than previous years
Calgary Herald/AP: Killing (TransCanada's) pipeline allows Obama to claim aggressive action on the environment....
Senator Lisa Murkowski says Obama Ignored Keystone Facts
Congressman Rob Bishop calls Obama, "...the most anti-energy extremist President the nation has ever had...."
Financial Post: President Obama’s first recognition of Canada’s new Prime Minister is an apparent slap in the face. In rejecting (TransCanada's) Keystone XL pipeline — which Justin Trudeau has supported — Obama has offered up yet another sacrifice to his presidential legacy en route to the climate melee in Paris. (See our commentary: "Killing Capitalism")
President Obama rejects TransCanada's application to build the Keystone XL pipeline, saying -- either misleadingly or stupidly -- that the project would not spur economic growth.
Alaska's Historic Week
Yesterday, we published an early, draft report of the recent special session of the Alaska State Legislature concerning the 'buy-out' of TransCanada's interest in the Alaska LNG project.
We should have waited for a later draft.
Dissatisfied with the result, we reworked it overnight, attempting to do better justice to a historic week in Alaska.
We hope that any reader who was disappointed with that first draft will scroll down or click back to read the newer, edited and shorter version.
We thank the several dozen readers who provided helpful comment during the special session and, as always seek the guidance of those wiser and more knowledgeable than we, as daily reports are submitted into the archives of Northern Gas Pipelines for future study and reference by industry, government, academia and the news media.
Respectfully and warmly,
P.S. New Special Session Reports and References:
- Juneau Empire: Walker Signs Bill
- Alaska Journal of Commerce
- SF Gate
- Alaska Journal of Commerce
- Houston Chronicle
- Petroleum News Alaska
- The Republic
SUPPORT HILCORP WITH ITS ALASKA NORTH SLOPE LIBERTY PROJECT ELECTRONICALLY -- OR IF YOU LIVE IN ANCHORAGE, PLEASE RESERVE MONDAY NIGHT TO GIVE A FEW SENTENCES OF ORAL SUPPORT!!!!
WHO: Hilcorp’s Liberty project
WHAT: Needs public comments in support of development
WHEN: Mon., Nov. 9, 2015, Between 7-10 p.m.
WHERE: Embassy Suites Hotel, 600 E. Benson Blvd., Anchorage
WHY: We need responsible resource development and the investment dollars they bring to Alaska
MORE INFO: www.libertyprojectak.com
As the Liberty Unit Operator, Hilcorp Alaska, LLC is currently pursuing all of the necessary permits and authorizations to develop the Liberty Reservoir. One step in this process is the preparation of an Environmental Impact Statement (EIS). During this time, the Bureau of Ocean Energy Management (BOEM) will hold public scoping meetings throughout Alaska to analyze the potential environmental effects of Hilcorp’s Development and Production Plan (DPP). Please consider attending the local scoping meeting and making these points:
Based on proven technology currently being employed in the Arctic…
Hilcorp will utilize the construction and operational technology perfected at Alaska’s other offshore facilities. It’s proven to be a safe and effective means for oil & gas development in the Arctic.
Artificial islands in the Alaska Beaufort Sea date back to the mid-1970s. In the last 40 years, eighteen (18) islands have been responsibly constructed for exploration and development of oil and gas off the coast of Alaska. Like Liberty, the majority of the artificial islands were constructed in shallow water depths less than 20 feet.
Alaska has a 30-year record of safely operating offshore in the Arctic. Endicott, the first offshore development on the North Slope, has been in operation for almost three decades, and now there are three other offshore fields in production: Northstar (2001), Oooguruk (2008) and Nikaitchuq (2011).
More oil in TAPS…
The Liberty oilfield contains one of the largest potential sources of new light oil production on the North Slope, with an estimated 80-130 million barrels of recoverable oil.
Development of Liberty will help offset declining light oil production on the North Slope and contribute to increasing the life span and efficiency of TAPS.
New oil is needed to keep the pipeline operating efficiently now that throughput is less than 25 percent of capacity. An additional 60,000-70,000 BOPD from Liberty will be an important addition to keeping the pipeline operational for decades to come.
As the first Outer Continental Shelf oil project in the U.S. Arctic, Liberty will provide important tax and economic benefits to the federal government, State of Alaska and North Slope Borough. It will generate construction jobs – primarily for Alaskans – and good-paying permanent jobs. It will create business opportunities for many Alaska businesses.
More information about Liberty can be found at www.libertyprojectak.com
To comment, or to review comments, go to www.regulations.gov and enter “BOEM Liberty” in the search field or BOEM-2015-0096. Comments must be received by 11:59pm Eastern Daylight Time on November 17, 2015.
Hilcorp’s Liberty DPP can be viewed at: http://www.boem.gov/Hilcorp-
The Courier: Clean Line station preferred in Pope
The converter station represents a direct investment of over $100 million in Arkansas, according to David Holt (NGP Photo), president of the Consumer Energy Alliance — a group which stated on its website it provides the energy consumers with sound, unbiased information on U.S. and global energy issues.
Electric Light & Power: VIDEO: Plains & Eastern Clean Line transmission project moves forward
David Holt, President of the Consumer Energy Alliance said, “Modern infrastructure projects like the Plains & Eastern Clean Line are critical to ensuring an affordable, reliable power supply for energy consumers here in Arkansas and across the Southeast United States. This project will not only deliver low-cost clean energy to Arkansans, but will create jobs and manufacturing opportunities here, as well. We are pleased to see this critical infrastructure project come closer to fruition.”
Coastal Observer: Politics: Offshore drilling opponents see victory in city election
Voters in the city of Georgetown elected three Democratic candidates to City Council this week after members of a local environmental group campaigned for them on the basis of their opposition to offshore oil drilling in the Atlantic. Democrats Al Joseph, Sheldon Butts and Clarence Smalls soundly defeated Republicans Richard Powers, Lee Padgett and Tom Winslow.
Washington Times: Obama, TransCanada say little about likely doomed Keystone pipeline
Twenty-four hours after claiming authority to make the final decision on the Keystone XL oil pipeline, the Obama administration said little about the issue Thursday, even as it looks increasingly likely that the project will die at the hands of the president.
The Hill: Dems to Obama: Reject Keystone before Paris
Democrats and environmental groups are ratcheting up pressure on President Obama to reject the Keystone XL pipeline now, ahead of major international climate talks in Paris next month. After a week of action on Keystone, Democrats say that denying the project before the conference would send a powerful — if symbolic — message about the United States’ resolve to combat climate change.
Reuters: Fed's Harker says Marcellus natural gas boom likely has peaked
The U.S. natural gas boom centered on the Marcellus shale fields has probably hit a peak for now, Philadelphia Federal Reserve President Patrick Harker said on Thursday. "The robust natural gas drilling that carried this region through the worst of the Great Recession has likely plateaued in the past few years," Harker said in prepared remarks to be delivered in Philadelphia.
Reuters: U.S. shale producers see big budget cuts for 2016
U.S. shale oil producers, having slashed fat from 2015 budgets after a 50-percent drop in crude prices, risk cutting to the bone next year as they pare spending further and get ready for a prolonged downturn. Top shale companies including Devon Energy Corp, Continental Resources Inc and Marathon Oil Corp this week released preliminary 2016 plans for capital spending that may fall by double digits.
Wall Street Journal: Oil Slump Forces Deep Cuts by Service Providers
Oil-field service companies are slashing costs amid an industry-rattling fall in crude prices, and no cut is too small—such as using white paint instead of yellow on underwater equipment. “It’s not big money,” said Hallvard Hasselknippe, president of subsea at Technip SA, noting that adding pigment to make the industry standard yellow paint is more expensive. “There are many examples like this.”
Fuel Fix: China keeping an eye on surging U.S. oil and gas production
The United States’ energy renaissance is catching attention in Beijing, where Chinese leaders view the phenomenon as “a double-edged sword,” according to a white paper from the free-market group American Council for Capital Formation. “China trusted the United States more when U.S. oil import dependency was higher and Washington actively sought increases in global oil production, a mutually shared objective,” writes George David Banks, executive vice president of the group.
Houston Chronicle: Bleak results continue for oil companies
More oil companies Thursday reported the bleak financial fallout from a crude price drop in the third quarter, even as the price of a barrel continued a fairly steady streak into the final three months of the year. At least three Houston-based independent oil producers reported third-quarter losses.
E&E News: Gulf of Mexico is bright spot for otherwise depressed industry
Offshore drillers appear to be muddling through the oil price bust. Production continues to rise in the Gulf of Mexico. Discoveries have been reported in new and mature offshore provinces. And offshore drilling may perk up again in Canada and elsewhere, even with oil prices in the doldrums.
OilPrice.com: Obama Admin Throws Alaska an Oil Lifeline
On Oct. 22, the U.S. Bureau of Land Management (BLM) gave the go ahead to a drilling plan in the National Petroleum Reserve in Alaska (NPR-A), one of the last ditch efforts to keep the Trans Alaskan Pipeline from running dry. ConocoPhillips has plans to drill the Greater Mooses Tooth Unit (GMT-1), which could result in the first oil and gas production from federal land in the NPR-A.
E&E News: Alaska poised to gain equal share in LNG megaproject
The Alaska Legislature this week opened the door for the state to become an equal partner with three major oil companies on a multibillion-dollar venture to commercialize Alaska's abundant North Slope natural gas reserves.
Juneau Empire: Arctic drilling complaint clears Legislature
After passing a landmark gas pipeline deal, the Alaska House approved a formal complaint against the Obama administration’s decision to cancel oil and gas lease sales in the Arctic. Unlike the gas pipeline bill, which passed unanimously in the House, the Arctic complaint broke mostly along majority/minority lines as it passed 27-12, with one representative absent.
Breitbart: Shock: Jerry Brown Used State Experts to Seek Oil On Family Land
California governor Jerry Brown used state experts to prepare a 51-page report on the prospects for oil development on his family’s private land in Northern California, according to an Associated Press investigation released early Thursday morning.
Seattle Times: Washington state joins legal fight to defend Obama climate plan
Washington and Oregon have joined a coalition of 18 states to defend President Barack Obama’s plan to slow climate change by reducing greenhouse gas emissions. They are opposing lawsuits filed last month against the Environmental Protection Agency by 25 mostly Republican states and allied industry groups.
KDRV 12: Oregon Joins Legal Fight to Defend Obama Climate Plan
Washington and Oregon have joined a coalition of 18 states to defend President Barack Obama's plan to slow climate change by reducing greenhouse gas emissions. They are opposing lawsuits filed last month against the Environmental Protection Agency by 25 mostly Republican states and allied industry groups.
Denver Post: CSU study says oil and gas water contaminants low in DJ Basin
A new Colorado State University report says there is no evidence water-based contaminants are seeping into drinking-water wells over a vast oil and gas field in northeast Colorado.
The Coloradoan: Colorado’s ozone fight could drive up costs
Larimer County is one of only 14 U.S. counties headed for the Environmental Protection Agency’s ozone blacklist in 10 years. The EPA adopted a new ozone pollution standard of 70 parts per billion last month, prompting cheers from many fans of smog-free skies but triggering a unique challenge for Northern Colorado, which is still out of compliance with the 75 ppb ozone standard adopted in 2008
Midland Reporter-Telegram: Comptroller: Saudi Arabia leaders “gambled and Texas won”
In June, Midland broke its streak where the sales tax collections were higher each month than the same month the year before but the economy is not all doom and gloom, according to Texas Comptroller of Public Accounts Glenn Hegar.
The Times-Picayune: St. Tammany fracking fight heard by appeals court in Baton Rouge
The protracted controversy over fracking in St. Tammany Parish returned to the courtroom on Thursday (Nov. 5) where attorneys presented oral arguments to the 1st Circuit Court of Appeal in Baton Rouge and answered questions about how much control the state and individual parishes have when it comes to oil and gas drilling in Louisiana.
The Register-Herald: Council to mull support for banning fracking waste
Local geologist Brandon Richardson, on behalf of the Fayette County Headwaters Defense group, asked Fayetteville Town Council at Thursday’s meeting to pass a resolution in support of the Fayette County Commission passing a county-wide ordinance to ban fracking waste disposal.
The Vindicator: Anti-fracking proponents snubbed by voters again
Why won’t the advocates of the absurd proposal to ban fracking in the city of Youngstown just go away? Because like all other self-appointed protectors of society, they can’t fathom not being embraced by a majority of the public. And so it is that the leaders of FrackFree Mahoning Valley are contemplating a sixth attempt to pass a charter amendment that would prohibit the use of fracking to extract oil and gas in the city of Youngstown.
Harriot Patriot-News: For a cleaner future, Pa. needs to focus on natural gas and nuclear energy: J. Winston Porter
President Barack Obama's new Clean Power Plan, which calls for a 32 percent reduction in carbon emissions from our power plants by 2030, places too much focus on solar and wind power. That's unfortunate since natural gas and nuclear energy must play the lead roles in meeting these carbon emissions targets.
Saint Peters Blog: Today on Context Florida: Fracking, U.S. Therapist General, delayed justice and the latest Salt Shaker Test
Sarah Maricle Ayers warns that Floridians should weigh facts on fracking before banning its benefits. The exciting energy frontier that hydraulic fracturing represents is one of the best-kept secrets in Florida. The process consists of blasting a water, chemical, and proppant solution under high pressure to create fissures in rocks, which then allows the release of the oil and hydrocarbons locked within.
CANCELLATION OF EXISTING LEASES.—Notwithstanding any other provision of law, not later than 60 days after the date of enactment of this Act, the Secretary shall cancel any lease issued under section 8 of the Outer Continental Shelf Lands Act (43 U.S.C. 1337) on or before the date of enactment of this Act in the Beaufort Sea, Cook Inlet, or Chukchi Sea.
On 10-29-15 we circulated this 'email alert' that resulted in several citizens and a few lawmakers asking, to the effect that, "Well Mr. Smarty Pants, if you're so bright how would you handle this situation?" (Actually, they were much kinder than that, and we only bring it up because reader questions were the reason we created this review.)
While we never claimed to be anything other than an observer, we emphatically never claimed to have a claim on "what's right". In fact, we will restate to our gentle readers right now that we have more reason to be humble than most of the people we interface with daily.
That is why we always invite reader corrections to any of our statements of fact; our highest priority is maintaining accurate gas pipeline information spanning half a century so that our archives may continue to benefit industry, government, academia and the news media for years to come.
However, we do hope that our career, can be made useful to our readers, along with our experiences in industry-government interaction going back to the beginning days of both TAPS and gas pipeline and LNG projects...and our personal interaction with all of Alaska's post-statehood governors except one.
In that spirit of humility, we have observed the special session proceedings. We have been very respectful of both House and Senate Democrat and Republican Members, and the many witnesses appearing before them (with minor exceptions).
We earnestly believe that while everyone in recent days has been 100% focused on best concluding the relationship with TransCanada, our service is to offer counsel regarding the medium and longer term future and Ak-LNG's role within other state budget concerns.
We have no advisor or supervisor or editor to assist with our work. We are truly independent. That liability is freely admitted. We thus hope that in spite of our own failings, readers will benefit with a series of snapshot viewpoints they may never before have considered.
Your indulgence and readership are deeply appreciated.
Background as we view it:
This review of the "November 2015 Special Session of the Alaska State Legislature" is designed to both comment on the result and provide insight into the challenges of state ownership that await this and future governors, legislators, citizens and industry representatives.
As the special session called by Governor Bill Walker ended this week, we did not oppose the Legislature's decision to approve certain appropriations. The appropriations allowed the governor to reimburse TransCanada (TC) for its expenses to date, plus interest, to "buy out" its participation in the project and to fund state operations and contributions to Ak-LNG's ongoing, pre-Front End Engineering and Design work (Pre-FEED).
If TC had remained engaged the state would have been obligated through agreements made by previous administrations to pay more than it would under the current arrangement (i.e. The 7.1% interest rate paid to TC is significantly higher than the state could now get via its own financing).
During current, special session hearings, legislators discovered that:
- there appear to be no single line of authority or clearly delineated organization chart illustrating management of Alaska's equity interest; overall state coordination of Ak-LNG project participation is unclear and could threaten project efficiency.
- the Administration seemed to be contradicting its long-vaunted claim of "transparency" when denying transparency to the Legislative branch of government by:
- not providing a full data packet to Members when the special session was called, even after repeated requests, and
- not communicating the full extent of major project roadblocks -- caused by the administration -- associated with its position on confidentiality agreements (CA), a withdrawal agreement format and commercial gas sales agreements, and
- not communicating that the AG had influenced the Alaska Gasline Development Corporation (AGDC) board to approve creation of two subsidiary corporations and the reasons therefore, and
- the AG refusing an audience with the House Judiciary committee earlier this week, causing a cancelation of the meeting, and appearing to being evasive as he participated in other meetings.
We believe Legislators and citizens as well, were comforted in part by knowing that the four Ak-LNG members will vote on whether to go forward with the project's 2016 work plan on December 4 -- and that takes a unanimous vote.
Accordingly, we believe that may begin to ponder longer range questions:
- As investment decisions begin to require more and more cash outlays, should the state continue supporting a high risk venture that could be justified by high profits in a future robust, world LNG market?
- Or, should the state be satisfied with royalties and taxes from the project while avoiding risky equity gambles in highly technical, competitive pipeline, LNG, and gas sales industries whose unpredictable business environment is exacerbated by fickle energy prices, incredibly intense competition, volatile world economies and high costs?
- (Note: While legislators, industry and the governor seem to be fully supportive of the first alternative right now, we truly hope that this review in some small way assists well-studied Alaskans and aficionados of the state to draw their own conclusions, enabling them to better compare the high risk/low risk options. We also acknowledge the importance the Ak-LNG producers place on having the state government at its side as the project moves forward @ 4:19:04. Indeed, one should seriously question whether or not they would wish to continue the project at this time without the state's 25% equity participation.)
Project crises could result in delays, unanticipated expenditures and large controversies that prevent lawmakers and the governor from competently carrying on the traditional responsibilities of office. Examples of such project crises include:
- Constant controversy time spent debating issues like confidentiality agreement (CA) requirements, withdrawal agreements and "completion" of commercial gas agreements. All of these are current issues elevated to a controversial level by the Administration, to the possible detriment of project "alignment" which all parties claim they must have to be successful.
- Having an unpredictable state partner insist at the "last minute" on big expenditures benefiting its equity interest injects an element of uncertainty. For the state, it carries with it the obligation to be the "cost payer" for 100% of the increased project costs that it "causes". One of the most well recognized pipeline and utility rate principles is that the causer of costs pays the costs. Following this principle, the state should pay, as the governor has said, for his desire to 1) "study" a 48" pipeline model as compared with the 42" case that has already been studied to death -- at great expense. 2) The state should also pay for the six month delay that the governor's 42" vs. 48" request may already causing. If the state's expenditure should prove that the 48" model benefits all parties, we can imagine all parties at that point freely agreeing to share the study costs. However, if the 48" model study reveals higher costs, the state should continue to bear all of those higher costs--thus negatively affecting net revenue the state might otherwise enjoy until future gas producers are capable of taking up the slack in capacity. Since the state justifies the 48" model on the thesis that it encourages more North Slope gas exploration by those who are not equity owners of Ak-LNG, that is a value that could accrue to the state and a new royalty/tax payer but not the other three equity owners. Accordingly, the state should also be prepared to shoulder other costs of the governor's 48" idea: 3) the additional cost of materials, labor and overall construction; and 4) the additional cost of operating any spare capacity in a 48" line that is, in essence, reserved by the governor for unknown future gas owners; and, 5) the cost of connecting any new gas shippers should be borne by the new "cost causers", not the existing 4-member consortium.
Unintended consequences. All of our respected elected and appointed officials mean well, "intending to represent the good people of the state of Alaska". However, while we cannot imagine or fully describe all possible unintended consequences of government attempting to control both its obvious and subjective interest in a free enterprise project, we have already articulated a number of traps and snares in earlier Northern Gas Pipelines commentary. All of these, and more, could require a significant amount of elected official time. As a refresher, here are a few of those possible traps and snares:
- Existing and future governors and legislators seeking to pressure the three private consortium members into accepting project expenses that do not benefit their shareholders. This dangerous possibility is created when one's peer, one's "aligned" partner is also one's regulator, one's royalty landlord and one's tax master.
- Elected officials "recommending" that AGDC talk with certain contractors about their capabilities--thus indirectly undermining AGDC contracting policies.
- Alaska elected/appointed officials in Juneau or Washington D.C. "recommending" employees/executives for AGDC consideration, thus attempting to influence employment practices that may corrupt established, fair hiring practices.
- Should AGDC be prohibited from hiring family and recommended friends of elected officials as a way to protect against the application of undue or even subtle influence? Members of the legislature work for private Ak-LNG affiliates; should legislators be permitted to work as employees or contractors for Ak-LNG, a public agency whose budgets and policies they control?
- Should the legislature, in this unique circumstance, create a "wall of ethical separation" between state officials and Ak-LNG's AGDC and private participants?
- Should AGDC, as Anchorage's ML&P has done in the past, purchase expensive "tables" or "tickets" at public events and invite elected/appointed officials to join executives at the event?
- Under what conditions should AGDC employees/spouses/families be given special treatment at public expense as private companies do at private expense (i.e. Christmas parties, birthday parties, retirement parties, summer BBQs, undocumented compensatory time, company vehicles, etc.? Can AGDC operate as a 'business' member of Ak-LNG under traditional state human resources policies? Should it? Do citizens want AGDC to become a "sponsor" of various community non-profit or government events, at public expense? Should AGDC use public funds to support member or board involvement in various community non-profits?)
- Should AGDC, acting as a 'business', develop community relations, stakeholder and public relations programs that result in the transfer of public money to private beneficiaries (i.e. travel, food, entertainment, scholarship programs, gifts, logo items, etc.).
- Should public meeting laws apply to AGDC 'business meetings and practices'?
- Should decision makers review the application of freedom of information requests to AGDC's public and confidential communications, especially when they could negatively affect private members of Ak-LNG?
- And, on, and on, and on....
Conclusion. We believe that for all these and many other compelling reasons, Alaska's elected officials should consider taking the following steps.
- Complete the buyout. We do not oppose the buyout of TC's participation in Ak-LNG. It might have been done differently. (i.e. One could have proposed amending, for robust committee discussion and debate, conditions the administration must meet prior to executing the buy-out. Those conditions might have eliminated many of the legislative concerns raised during the special session. The concerns included lack of an effective AGDC chain of command; role of the AG in AGDC business; confidentiality agreement regulations acceptable to Ak-LNG's private participants; conflict of interest rules and any other employee or agency practices that could or should deviate from state statutes and regulations. Of course, in committee these could be shown and agreed upon as related to the Governor's call.)
- Auction Alaska's equity interest to a qualified buyer. In view of the above, one could imagine sincere consideration being given to arranging a date certain (i.e. or, an appropriate time in the "stage gate process"), by which the state could conduct a world-wide auction of the state's entire equity interest in the Ak-LNG project under terms and conditions acceptable to both the Legislature and to the three private participants in Ak-LNG. If adoption of this sort of process is considered, it might be done only after passage of an acceptable constitutional amendment guaranteeing the private participants an adequate degree of fiscal certainty. Thus, any "alignment" issues affected by a sale of the state's equity could possibly be ameliorated. But in our view, this could only happen if the private project participants felt sufficiently comfortable with a new alignment of interests enabled by the constitutional guarantee of fiscal certainty .
Shedding Ak-LNG equity over time could permit the governor and legislature to focus all their energies and talents on the pressing problems of a state facing immediate fiscal crisis:
- an operating budget with a $3-4 billion annual deficit
- a disinclination to make significant spending cuts leading to a sustainable budget
- available savings to subsidize such a deficit for only another 2-3 years
- a current unfunded employee pension liability that is several times greater than the annual deficit
- an annual deficit that could expand to 90% of the current operating budget if the Trans Alaska Pipeline (TAPS) should fail. The hot oil pipeline now operates 3/4 empty, is losing throughput at a rate of 5-7% annually, and is vulnerable to a catastrophic shut down -- especially during a cold winter. TAPS over its life has already experienced a number of unexpected shut-downs resulting from maintenance, man-caused and force majeure events.
- If the TAPS should fail, it could affect the future of the Ak-LNG project, since producing Alaska North Slope (ANS) gas is enabled by both the production of oil and the extensive and expensive array of production and service facilities already existing there.
- 90% of Alaska's operating budget originates with oil & gas tax and royalty income, mostly from the ANS. Even if an LNG project becomes reality by 2025, the income it would generate would come too late to support a more immediate, significant loss in TAPS throughput. The volatility of the LNG market and the now-accessible world-wide reserves of shale oil and gas contribute to a prudent view that the state should not now be counting on any particular income from a gas project. Before counting its eggs, the state should wait until 20-year "take or pay" contracts are safely secured before an Ak-LNG final investment decision (FID) is made. Even then, in the final stretch, there is the potential for unknown and extremely dangerous delay and project completion risks. Perhaps the state legislature and governor should have a discussion and perhaps even call for a public vote confirming the public's risk-avoidance preferences.
- Decisions about state budget spending cuts/increases will be difficult and demanding enough. Inserting into the schedule of elected officials the overwhelming, additional burden of minding Ak-LNG equity exigencies will cross all legislative, executive, political, public relations, cultural, logistical, geographical and legal boundaries, and officials should be prepared for that.
- Controversies surrounding additional taxation or the Permanent Fund or Sovereignty Funds will introduce overwhelming challenges into a life for elected officials of perpetual crisis.
Dave Harbour, publisher of Northern Gas Pipelines, is a former Chairman of the Regulatory Commission of Alaska and a Commissioner Emeritus of the National Association of Regulatory Utility Commissioners (NARUC). He served as NARUC's official representative to the Interstate Oil & Gas Compact Commission (IOGCC).
The former Army officer is past Chairman of the Alaska Council on Economic Education, former Chairman of the Anchorage Chamber of Commerce, and past President of the American Bald Eagle Foundation and the Alaska Press Club. He is Chairman Emeritus of the Alaska Oil & Gas Congress.
Harbour has served as a public/government/external affairs manager for three gas pipeline companies and an oil company and has owned several small companies in Alaska.
He has addressed or chaired dozens of oil and gas conferences throughout the United States and Canada and hundreds of his editorials and articles have appeared in newspapers, magazines and electronic media throughout North America.
Harbour holds a Master of Science Degree in Journalism-Communications and is an accredited member of the Public Relations Society of America (APR).
Opinions or viewpoints expressed in this webpage or in our email alerts are solely those of the publisher and are not intended to -- and frequently do not -- reflect the opinion(s) of any affiliated company, person, employer or other organization that may, in fact, oppose the views stated herein. -dh
Juneau Empire by James Brooks. Alaska’s natural gas megaproject is moving forward.
With a 39-0 vote, the Alaska House approved spending $161.25 million to advance the AKLNG project, which promises to bring natural gas from the North Slope to an export terminal at Cook Inlet. (Governor Walker's LNG Project press releases are here.)
TODAY, November 5, 2015 at 10:30AM EST, Chairman Rob Bishop will hold a press conference call to discuss legislative reforms to the Land and Water Conservation Fund (LWCF).
Committee on Natural Resources Chairman Rob Bishop outlines legislative reforms to the Land and Water Conservation Fund.
Thursday, November 5, 2015
11-4-15 Converting TransCanada's Ak-LNG Equity To Alaska Government Interest - Great Profits Ahead Or A Risky Experiment In Socialism?
The Alaska Legislature's House Finance Committee Voted This Morning To Support A Senate Bill Approving The Buyout Of TransCanada's Participation in the Ak-LNG project. (Audio here).
HARBOUR SPECIAL SESSION COMMENTARIES:
We will have more to say about this Alaska LNG government ownership policy and appropriation Tomorrow.
We believe we are witnessing a paraphrased version of what one national leader said nearly 8 years ago: This special session of the Alaska State Legislature and an activist governor are, "...in the process of fundamentally changing the state of Alaska."
Read Our Complete Analysis Tomorrow Morning!
11-3-15 Alaska's Senate Approves TransCanada LNG Buyout As the US State Department Ignores TransCanada's Keystone XL Request
Alert: late this morning the Senate passed CSSB3001 following yesterday's approval by the Senate Finance Committee. The measure gives Alaska's governor the LNG project appropriations he requested in spite of many legislative concerns about his handling of the project to date.
Rep. Gabrielle LeDoux's angry floor speech taking Attorney General to task (We agree with her comments. -dh)
From our Consumer Energy Alliance friends of Alaska, comes this alert about an Anchorage BOEM Hearing next MONDAY. Let's Comment TODAY! Then arrive before 6:30 Monday to get a good seat and read your testimony! Make it short and sweet, from the heart and about your family and livelihood. It's Easy. Support our Liberty Field production and enhanced TAPS throughput! -dh
Our Commentary And Our Guru's: Growth of Electric Cars and UBER May Be Bad For Oil But Good For Natural Gas Producers and LNG Transporters
Speak Out in Support of Alaska's Economy
|Policymakers in Washington need to hear from you in support of Alaskan energy production!
The Bureau of Ocean Energy Management (BOEM) is holding a public meeting in Anchorage on Monday, November 9 from 7:00 p.m. – 10:00 p.m. (Embassy Suites at 600 E. Benson Blvd.) to get public comments on the potential development of the Liberty oilfield, located in shallow waters off Alaska’s northern coast.
Alaska needs this!
Also, don’t forget to tell Washington to allow America to develop its Alaskan energy resources by sending a formal letter before the public comment period closes!
Commentary: Sure the growth of electric cars is bad for oil and refined gasoline products, but what a blessing for gas producers--and our readers following US and Canadian LNG projects. Coal used to generate about half of US electricity -- the cheapest half -- but is rapidly being replaced with natural gas. That trend is moving on a faster and steeper curve owing to the abundant domestic production of shale gas. Below is additional insight from our Mid-Atlantic O&G analyst friend who commented on this recent article on the subject. -dh
Last week a colleague (and reader) posed the following question to us:“Have you seen anything published on self driving cars' impact on fuel demand?” In our true research style, we kicked the question to Allen, and Allen delves into the topic in the attached Musings. We did add, however, that we see Uber (and eventual competitors to that business model) as being at least as great a threat to gasoline demand. Whereas the technology for mass use of electric cars still has to overcome the need for mass fueling stations and a lower recharge time for batteries (and/or longer range between charges), Uber has no such infrastructure hurdle to overcome. A cheap, quick, reliable driving service is the ultimate commoditization of the car.
We then ran across the excellent blog post linked below, the heart of which is printed for the time-constrained. The author links the electric car to the Uber service. It makes a lot of sense, and it is certainly a possible trend to watch.
Bottom Line: Uber is not just a threat to the taxi business, it is a threat to the automotive and gasoline industries.
11-2-15 Shell's $7 Billion Chukchi Effort A "Dry Hole", Predecessor Mistake; Analyst Calls Chukchi Shell's "Strategic Mistep"
We appreciate comment from the Transportation Institute, represented by our longtime reader, Rich Berkowitz. -dh
This pronouncement from Shell's CEO, Ben van Beurden, is the first time I have heard mention of a "dry hole" with respect to Shell's Arctic drilling. It is discouraging, to say the least.
"In a conference call with journalists on Thursday, Mr. van Beurden said the well that Shell drilled in the Chukchi Sea this summer was “a dry hole” and “a major disappointment,” but that it was “very conclusive” and made further expensive drilling unnecessary. He added the company was “demobilizing” its fleet of drill ships and support vessels there and winding down the operation.
Mr. van Beurden also criticized the licensing process in the United States, saying that the American authorities “should simplify and modify the permitting process” if they have the ambition to further develop oil in the area. On Thursday, Shell said it was taking $2.6 billion in write-offs for Alaska."
Shell's $7 Billion Chuckchi Effort A "Dry Hole", Predecessor Mistake; Analyst Calls Chukchi Shell's "Strategic Mistep"
New York Times by Stanley Reed. ... Analysts say that Mr. van Beurden is trying to clean up mistakes by his predecessors and that doing so could allow Shell to focus on its strengths in liquefied natural gas and deepwater oil projects.
“Getting out of previous strategic missteps (Alaska, shale, more oil sands) via the impairments is a necessary evil,” Oswald Clint, an analyst at Sanford C. Bernstein in London, wrote in a note to clients on Thursday.
In a conference call with journalists on Thursday, Mr. van Beurden said the well that Shell drilled in the Chukchi Sea this summer was “a dry hole” and “a major disappointment,” but that it was “very conclusive” and made further expensive drilling unnecessary. He added the company was “demobilizing” its fleet of drill ships and support vessels there and winding down the operation.
Mr. van Beurden also criticized the licensing process in the United States, saying that the American authorities “should simplify and modify the permitting process” if they have the ambition to further develop oil in the area. On Thursday, Shell said it was taking $2.6 billion in write-offs for Alaska.
WSJ by BILL SPINDLE and ERIN AILWORTH. As a financial storm lashes the U.S. oil patch, energy companies are seeking shelter in the closest thing the industry has to a port: a sprawling expanse of West Texas known as the Permian Basin. (Comment: Do Alaskans think this world-wide trend will not affect TAPS throughput, Alaska's budget or the Ak-LNG project? -dh)
Legislative Hearings: LNG updates:
ADN by Pat Forgey. TransCanada has been trying to bring Alaska's vast natural gas reserves to market for decades, but now the pipeline company that was once viewed as Alaska's savior is on the verge of ending a high-profile relationship with the state. Gov. Bill Walker is asking the Legislature for money and authority to buy out TransCanada's investment
US News & World Report/AP. Legislative consultants say the financial case for keeping or shedding TransCanada is too close to be persuasive, given all the uncertainties at this early stage. They say the decision should focus on strategic considerations.
ADN by Pat Forgey. Gov. Bill Walker is asking the Legislature for money and authority to buy out TransCanada's investment in a proposed 800-mile natural gas pipeline to a liquefaction plant and liquefied natural gas export terminal in Nikiski. Legislators already have spent a week in special session considering the question.
That decision may result in TransCanada going its own way and focusing its efforts on its own plan to export Canadian LNG from Prince Rupert, British Columbia.
LARRY PERSILY'S RELEVANT NEWS LINKS:
Oil and gas news briefs for Nov. 2, 2015
Global LNG oversupply leads to more spot sales and trading
(Reuters; Oct. 30) - Producers and importers of liquefied natural gas are preparing to trade the fuel more actively on a spot basis as a looming supply surplus threatens to overwhelm decades-old contracts and push prices lower. With 130 million metric tons of additional LNG capacity in Australia and North America by 2020, producers and traditional buyers such as Japanese utilities have expanded trading teams to handle excess cargo flows and navigate a more open market.
Excess supply, along with rising demand, is key to establishing a liquid commodity market, as opposed to times of tight conditions when producers and consumers tend to enter long-term fixed supply agreements rather than trade openly. "Buyers will be able to have their choice ... (of) very large supply sources that can deliver pretty much at a moment's notice," Cheniere Energy CEO Charif Souki said this week at a conference in Singapore. Cheniere is set to start up its LNG plant at Sabine Pass, La., in January
LNG market ‘a train wreck happening in slow motion,’ says analyst
(Wall Street Journal; Oct. 30) – With liquefied natural gas prices slumping and demand in key consuming countries like China looking shaky, the energy industry’s optimism seems to have fizzled. In recent years, oil and gas majors have invested billions of dollars in LNG projects in countries such as Australia and Qatar, while vast sums have been spent on plants that turn LNG back into gas in consuming countries, all in the belief that demand for the fuel would rise rapidly. It hasn’t quite worked out as planned.
The pessimism surrounding the LNG industry was unmistakable at this week’s annual Gastech conference in Singapore. One regular attendee, an LNG strategist at a Malaysian energy company, said she had never been to a gloomier energy event. “The entire industry is worried because it is hard to tell when China’s demand will pick up again. Rising demand from smaller countries such as Pakistan, Egypt and Bangladesh is not enough to offset the declining demand from north Asia,” she said.
LNG prices are certainly in a funk. Two years ago, gas to Japan and Korea sold at $15 to $16 per million Btu. This month, cargoes are selling for $6.65. LNG prices are like “a train wreck happening in slow motion,” said Neil Tomnay, global head of gas and LNG research at Wood Mackenzie. Suppliers cannot rely on China’s rapid industrialization to soak up extra gas, with economic growth there dawdling. The industry now believes China won’t need all the LNG it has contracted to buy, Tomnay said. In line with his comments, PetroChina and CNOOC offered three LNG cargoes for resale last month.
Reuters analysis shows low prices undercut LNG economics
(Reuters; Oct. 29) - When Cheniere Energy opened its liquefied natural gas import terminal in Louisiana in 2008, a U.S. shale drilling boom soon made it obsolete. Seven years on, with the firm about to open an export plant on the same site, the timing, again, is far from ideal. A Reuters analysis shows that a slump in oil prices and glut of LNG threaten to undercut the economics of U.S. gas exports, crimp shippers' profits and possibly reduce demand for facilities such as Cheniere's $12 billion Sabine Pass plant.
New supply across the globe, faltering demand and a steep drop in oil-linked LNG prices will make short-term, or spot, deliveries of U.S. gas to markets in Europe and Asia unprofitable next year, according to the Reuters calculations. The calculations, corroborated by analysts, raise questions about the profitability of short-term shipments not just from Sabine Pass but from the four other U.S. export plants under construction.
The other U.S. projects are in Maryland, Louisiana and two in Texas, all set to go online between 2017 and 2019. "U.S. LNG will materialize at a time when the biggest market (Japan) is witnessing a demand reduction and when supply is growing again massively thanks to Australia," said Thierry Bros, senior gas analyst at Societe Generale. "This is the worst possible timing for this new LNG that has no dedicated market."
Low prices will spur increased LNG demand, Barclays says
(Energy Wire; Oct. 29) – New liquefied natural gas export terminals and expansions will be put on hold as players reassess the market, a Barclays research note argues. "Most of the demand outlooks we have seen were based on the expectation that LNG prices were going to be in the teens," the analysts wrote, referring to prices that prevailed as recently as a year ago before the oil and gas price crash. "If it is going to remain in the $7 to $9 (per million Btu) range, we think these demand outlooks are understated."
But many analysts expect crude prices to recover in the next year or two, rising to a $70 range. Meanwhile, spot and contract LNG prices will likely remain depressed, they said, due to factors including those lagging averages, the flood of new LNG supplies coming online and excess supply turned away by buyers. "When crude prices recover and LNG prices don't follow suit, we think fertilizer, power and petrochemical industries are going to have to seriously consider switching from higher-cost feedstocks such as naphtha and fuel oil," the analysts wrote, with a resultant surge in gas demand.
Yamal LNG continues work to secure financing
(Reuters; Oct. 29) - A deal to raise financing for the Novatek-led Yamal LNG project in the Russian Arctic is in its final stages, the chairman of Gazprombank, Andrey Akimov, told Reuters. Gazprombank is a co-lender to Yamal LNG on the Russian side, along with Sberbank. State development bank VEB has pledged $3 billion in banking guarantees to the $27 billion project that is under construction.
Akimov said Chinese lenders are set to provide $12 billion, Russian banks $4 billion, and export credit agencies are expected to put up $4 billion. He said he planned to travel to China in early November for talks on the deal. But Akimov’s reassurances run contrary to reports in Kommersant, a Russian business daily, which reported Oct. 29 that Yamal is having trouble with financing. The Russian, French and Chinese partners have already put up $10 billion, leaving at least $17 billion still to be financed.
Novatek has been negotiating with Chinese banks for more than a year, the newspaper reported. Sources say that the main cause for the delay in negotiations is a very high interest rate on bank loans in China. The newspaper refers to sources saying that Novatek, which cannot attract financing in dollars due to the Western sanctions against Russia for its role in the Ukraine conflict, hopes to get the money from European export agencies because that would be cheaper than attracting the loans from Chinese banks.
Qatar expects long-term LNG demand growth at 2% a year
(Gulf Times; Qatar; Oct. 28) - The longer-term fundamentals for natural gas and LNG look bright amid new market dynamics and price volatility, a senior Qatargas executive said. Qatargas chief operating officer Alaa Abujbara presented at Gastech 2015 in Singapore, focusing on recent changes in global gas and LNG markets and changes expected over the medium to long term. He said the energy sector was going through a “fundamental re-balancing,” characterized by “new market dynamics and price volatility.”
Excess LNG will go where it can best compete with coal, analyst says
(Reuters; Oct. 28) - What's well known is that a wave of new liquefied natural gas is about to swamp already well-supplied markets. What's less known is how these cargoes will be absorbed. The assumption has always been that China would soak up vast quantities of the fuel, driven by rising energy demand and the need to switch from more polluting coal. But this view has been challenged by China's slowing growth and by evidence that gas is failing to make the anticipated inroads into China's energy markets, mainly as it remains a higher-cost option for industry, consumers and power generators.
China is key player in coal-to-gas switching
(Reuters; Oct. 29) – A wave of liquefied natural gas due to hit energy markets over the next couple of years is expected to displace tens of millions of tons coal demand globally, helped by government initiatives to move away from polluting power generation. Both coal and LNG are oversupplied after higher prices during the past decade triggered investments in new projects and expansion plans. That new supply arrived just as demand weakened.
At the same time the gap between their prices has narrowed as LNG has become more competitive, particularly where governments penalize coal via taxes or emissions trading schemes. "There is a monstrous amount of LNG coming into the market, on pure cost economics you can say coal is cheaper than LNG at any realistic price, but it (the gas) is going to be used somewhere and if it is coming in the volume that's forecast it will be displacing coal," a coal trader said.
Cheniere signs 5-year deal to sell LNG to French company
(Bloomberg; Oct. 28) - Engie has agreed to buy liquefied natural gas from Cheniere Energy, increasing the importance of France as a market for U.S. gas. The Houston-based company will ship as many as 12 LNG cargoes a year to France’s Montoir-de-Bretagne regasification terminal under a five-year contract, Engie said Oct. 28. The deliveries, on an ex-ship basis, will start in 2018 at prices linked to northern European markets, Engie said. The LNG can alternatively be shipped to other European terminals.
Australia LNG project set for November start-up
(Sydney Morning Herald; Oct. 30) - Origin Energy has confirmed November as the date for the long-awaited start-up of its $24.7 billion Australia Pacific LNG project in Queensland, making it the third of the state's huge coal-seam gas projects to begin production this year. Origin's head of integrated gas, David Baldwin, said the first liquefied natural gas would be shipped from the plant "a few weeks thereafter.”
Company targets 2016 for decision on African floating LNG project
(Reuters; Oct. 29) – London-based Ophir Energy expects to make a final investment decision in 2016 for its floating liquefied natural gas project off Equatorial Guinea, a senior executive said Oct. 29. Oliver Quinn, director of new business for Ophir, told an industry conference that first gas production from the project would come by the middle of 2019. The offshore operation would produce 2.2 million metric tons of LNG per year.
Eni still plans Mozambique floating LNG decision this year
(Reuters; Oct. 30) - Italy's Eni said Oct. 30 it was still looking to secure debt financing for its Coral LNG offshore project in Mozambique and will make a final investment decision on the development by year-end. Eni is in discussions to secure 60 to 70 percent debt financing for the project, Ferruccio Taverna, vice president for Eni in Mozambique, said at an industry conference in Singapore.
First Nation says B.C. approval of LNG plant premature
(The Canadian Press; Oct. 28) - The Squamish Nation says the B.C. government's conditional approval of a proposed liquefied natural gas export facility north of Vancouver did not fully assess how the project would impact its aboriginal rights. Chief Ian Campbell said the province granted an environmental assessment certificate for the Woodfibre LNG plant this week without full consultation with the First Nation.
Campbell said the Squamish Nation is looking forward to further discussions with the government because many of its own conditions for approving the facility are different than those set out in the certificate. The Squamish Nation has expressed concern about the impact on fish in Howe Sound. The B.C. Environment Ministry has said Woodfibre LNG must continue to work with aboriginal groups.
B.C. LNG developer appeals federal import duty on plant
(Business in Vancouver; Oct. 27) - If Canadian liquefied natural gas projects are to avoid the cost overruns that Australia experienced, they might need to have some of the fabrication done offshore, rather than try to build everything on site, according to a recent analysis by KPMG. But one company that’s trying to do just that has had a $75 million hurdle placed in its path by the federal government in the form of a customs duty on a floating LNG plant, and as a result is postponing a final investment decision.
Qatar largest LNG and condensate exporter in the world
(Arabian Oil and Gas; Oct. 26) - Qatar, the world's second-largest exporter of natural gas (behind only Russia), exported nearly 4.3 trillion cubic feet in 2014, almost all of it as liquefied natural gas — making the country the world's largest LNG exporter in 2014 at 32 percent of global supply, according to a recent country report released by the U.S. Energy Information Administration. Most of Qatar's exports go to Asia.
Qatar has more than 90 percent of its LNG production volumes committed through 2021. Due to a self-imposed moratorium on new projects, however, Qatar's production has plateaued and could begin to decline soon.
Hawaii Gas still wants to bring bulk LNG to the islands
(The Garden Island; Hawaii; Oct. 25) - Hawaii Gas is continuing with its plans to bring liquefied natural gas in bulk to Hawaii. Joseph Boivin Jr., senior vice president, said LNG will be the premier energy source going forward in Hawaii. It’s cleaner than petroleum products, cheaper, environmentally friendly and there’s plenty of it. “We want to bring larger-scale natural gas to the islands,” he said during a recent visit to Kauai.
LNG ship builder says market will pick up
(Bloomberg; Oct. 29) – South Korea’s Daewoo Shipbuilding & Marine Engineering, the world’s second-biggest shipbuilder, expects demand for liquefied natural gas carriers to return next year as global efforts to reduce greenhouse gases increase the need for cleaner fuel. More industries will look at using gas to replace other fuels, Kim Nam Soo, deputy director of the company’s ship design department, said in Singapore.