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      This is your public service 1-stop-shop for Alaskan and Canadian Arctic energy commentary, news, history, projects and people. We update it daily for you. It is the most timely and complete northern energy archive 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 name others existing before 2001.  -dh



15 October 2015 2:33am

Enviro-Activists Have Created A War Against Civilization--Throughout North America!  -dh

We comment on today's blog by our Aussie O&G Analyst friend:

Remember Governor Walker's recent trip to Japan (Very productive and groundbreaking...NOT; the Japanese will happily consider buying Alaska's gas 1) at the right price, and 2) if Alaska gas can be transported to Japan.  But should Alaska market its royalty gas or let the experienced producers do it?  Will Japan need gas when Alaska's project is complete?  How can Alaska's gas project be sanctioned if the Governor refuses to support fiscal terms of certainty re: Alaska gas AND oil taxes.)

We are sure Alaska's governor tasted no fewer flavors of Japanese hospitality than the Australian resource minister will.  We are also confident that the result of the Australian trip will be little more or less productive than Governor Walker's trip -- except that the Australian private sector has two new and large LNG projects ACTUALLY coming on-stream in 2016-17 from tidewater sources at what will be competitive world prices.  

Alaskan producers are still diligently trying to create a feasible project to transport 35 Tcf of Alaska North Slope gas to tidewater, 800 miles from the North Slope, where it can be converted to LNG and compete for Japanese business.

As a demonstration more of intelligence than courage, Alaska's governor is criticizing Alaska's producers as they endeavor to accomplish their mission; he is threatening them at the same time with a reserves tax on top of the already high Alaskan industry tax burdens.  

When will some people learn that too many government cooks inevitably spoil the economic stew?

...especially when those cooks are not very good at what they do?     -dh

Our Aussie friend says


The Australian Financial Review (AFR) published a story today about a trip to Japan by Australia's new Resources Minister, Josh Frydenberg.  The primary aim of the trip was said to be to encourage further Japanese support for Australia's LNG ministry, through meetings with the likes of the Japanese Minister who oversees METI.

The Australian Government owns no gas reserves / resources, has no marketing expertise therein, will have little knowledge of the intricacies of gas markets and has only tangential influence over the Super-Majors and NOCs who dominate ownership of Australia's gas reserves.  (Note: we have said the same about Alaska's governor.  -dh)  On the Japanese side, although there is a far greater integration of Government and gas buyers (through "Japan Inc"), the Government does not directly buy any gas.

Those hardened cynics who adopt a less starry-eyed view of the world than this blog will not expect the Minister to achieve much from this trip other than taste the pleasures of Japanese hospitality.

This is of course what Governments around the world do, so Mr Frydneberg is no orphan - but he is a Minister of a Government that supposedly understands and supports free enterprise.

COMMENTARY.  We only wish we could name our confidential O&G analyst friends, but each has reasons for wanting to offer solid analysis without being named -- yet.  

Today we bring you a very current, eye-opening analysis of the reality of oil supply and demand from our mid-Atlantic O&G analyst friend.  

Our Alaskan and Canadian friends should be taking from this that worldwide competition is becoming more not less stressful; and, that the O&G industries supporting our way of life need popular and political support -- not hostility, opposition, higher taxes and more destructive regulations!  -dh

From Our Mid-Atlantic O & G Analyst Friend:

There are telling signs that the effort to rein in crude oil and natural gas production is getting into full gear. Some of these are directly related to field operations, but some ancillary signs are just relevant in our opinion.


·        We have had several reports that the oil & gas conference business is dwindling rapidly. A number of “annual” conferences have been cancelled this year, and attendance at the rest are lagging badly.

·        We got a report today that the SEC is finalizing rules to allow crowdfunding to add such businesses as oil & gas drillingeligible to attract investment funds through this vehicle.

·        Assets being put up for sale in the Oil Patch are climbing rapidly:




·        Banks are trying to secure themselves without appearing worried. The recent securing of Chesapeake’s bank line is Exhibit A: See FuelFix




·        There are stories of layoffs everywhere, and some companies are cutting for the second or third time in the past year. Salaries are frozen, and bonuses are gone.

See Market Watch

And now comes production reports from the various fields. We watch the Bakken fairly closely, as being a good barometer of overall health.  Wells drilled and volumes were starting to show a significant drop in August.

See the chart below: 

The drop of 19,502 bpd may seem small, but underlying it is the implicit decline rate that will show up further as the number of new wells added in the next couple of months stays very low. The decline comes despite the fact that producers are only drilling their best prospects in this environment. The Daily Production Per Well (112, which is the lowest monthly number since 2008) would be even lower if not for that effort.

The downside is that the Bakken now has 993 uncompleted wells, the highest level yet. This will help keep the volume of production from dropping in a big way for at least 18 months.

Bakken Oil Production (September to August for each year)















Daily Oil




Wells Per





(To August)





Per Well

Per Well




Per Rig

Per Rig






2015 Detail










































































































































...what the market does not do to cut production may come from an onslaught of regulation. The October Director’s Cut (monthly status report) goes on for over four pages summarizing proposed regulations:

Also, a report on Fuelfix today noted the regulatory environment in the Bakken.

BISMARCK, N.D. (AP) — A North Dakota oil industry official says proposed federal regulations threaten the state’s oil production more than depressed crude prices.

North Dakota Petroleum Council Vice President Kari Cutting told an interim legislative committee onWednesday that the new rules range from changes in air quality standards to additional animals being listed as endangered species.

Cutting says the industry is most concerned about the possibility of the federal government regulating the burning of natural gas as a byproduct of oil production.

Cutting says the industry has been able to adapt so far to slumping oil prices. But she says it will have a tougher time adapting to what she calls increased federal overreach.

Cutting’s group represents more than 550 companies and 65,000 workers in North Dakota’s oil and gas industry.


Bottom Line: There is much evidence that the cycle should be getting close the bottom. The biggest question is the length of time any recovery will take. We see evidence of two major catalysts: 1) The cost of capital is being raised for the energy industry, away from what the nominal cost of funds is elsewhere, and 2) The regulatory environment is going restrict the volume of activity.

Calgary Herald/Bloomberg.  The battle to build natural gas pipelines in the post-Keystone XL world has moved from the hearing room into the streets.

Developers are squaring off against activists like Nick Katkevich, who’s prepared to risk jail time to block new pipelines. Their actions have forced companies like Spectra Energy Corp. to take countermeasures that include training staff and contractors to cope with acts of civil disobedience, arranging undercover security and monitoring opponents’ websites and social media postings for signs of protests.

Katkevich, a 30-year-old self-described professional activist from Providence, R.I., says he’s been arrested 11 times for non-violent protests, most recently in September when he chained himself to construction equipment at a Spectra pipeline project. Driven by a desire to hasten the end of the fossil-fuel era, Katkevich said he draws inspiration from the dozens arrested in Texas, Oklahoma and Washington protesting the Keystone pipeline.

“We’re going to keep resisting and costing them money,” Katkevich said in an interview. “We don’t need to be investing billions of dollars in another fossil fuel like fracked gas.”  (More....)

Our Aussie friend (link right column) also provides his quote for the day to which we add a comment.

He observes:

Aussie Quote Of The Day

In light of last week's news about a potential material oil discovery in the Golan Heights, Israel will be hoping that the views of its early 1970s Prime Minister, its own "Iron Lady" Golda Meir, will finally prove to be incorrect:

“Let me tell you something that we Israelis have against Moses. He took us 40 years through the desert in order to bring us to the one spot in the Middle East that has no oil.”

Dave's comment: The story of Moses recounts over a dozen times when the Israelites revolted against God's will after he had led them out of Egyptian slavery.  Each time, Moses caused them to return to God...but their disobedience caused them to wander the deserts for 40 years before finally reaching the promised land.  Golda's statement (Circa. 40 years ago), while possibly said in jest, could be interpreted as a criticism of God's plan.  The recent discoveries of Mediterrean gas and Golan Heights oil shale have given further witness to the power of the caring and powerful Creator who knows exactly what He is doing.  It is perhaps a modern demonstration of His hand at work, an example about why it is so necessary for His followers everywhere to be patient and faithful.  -dh


10-14-15 Gasline Board of Directors Meeting Friday

14 October 2015 2:27pm

We encourage interested readers to attend in person or by streaming web video, the monthly meeting of the Alaska Gasline Development Corporation Board meeting.  Here are the specifics, courtesy of our friends at Alaska Business Monthly:

The Alaska Gasline Development Corporation (AGDC) Board of Directors will meet on October 16, 2015 in Anchorage, Alaska at the AGDC corporate office, Calais Building One, 3201 C Street. The meeting will be held in the AGDC Board Room, Suite 604 and convene at 9:00 am.

The public is invited to attend in person at the location mentioned above or by teleconference by calling 855-282-6330 FREE access number 921 140 169.



10-13-15 ConocoPhillips Feeds New Kuparuk Oil Into The Trans Alaska Pipeline System (TAPS)

13 October 2015 2:21am

Larry Persily, Federal Coordinator, Alaska gas pipeline, LNG, North American Gas Forum, Kenai Peninsula, Photo by Dave HarbourTony Clark, FERC, NARUC, North American Gas Forum, LNG, Alaska, Larry Persily, Photo by Dave HarbourFERC has full workload with LNG export projects"

by Larry Persily

​(NGP Photos: Larry Persily (L) and FERC Commissioner Tony Clark)

Be a part of the Alaska Support Industry Allance's Annual MEET ALASKA conference in January.  Here's how!

ConocoPhillips Adds New Oil to the Trans Alaska Pipeline

Yesterday, ConocoPhillips Alaska Inc. announced that Kuparuk Drill Site 2S (DS2S photo) began producing ConocoPhillips Alaska, Kuparuk, ConocoPhillips, Drill Site 25, Photo Courtesy ConocoPhillips, Edited by Northern Gas Pipelinesoil, under budget and ahead of schedule. The project was approved for funding in October 2014, and production was originally expected in December.

This is the first new drill site at Kuparuk in more than 12 years. DS2S is expected to add about 8,000 barrels of oil per day (BOD) gross at peak production.

Kuparuk Drill Site 25, new oil, ConocoPhillips, Photo Courtesy COP“Drill Site 2S is one of the key projects that we announced after passage of tax reform,” said Joe Marushack (NGP Photo), President, ConocoPhillips Alaska. “The $475 million project created about 250 jobs during construction, with numerous contractor companies and trades involved.

"We thank them for their effort to bring the project in ahead of schedule and for their commitment to working safely," Marushack said.  (See full release here.)


1.  BP's 3rd Quarter results will be published in two weeks, on Tuesday, 27 October.

2.  Today our Aussie O&G analyst friend comments today on Alaska's Kenai LNG plant and on liquidation underway within the O&G industry.

3.  Today our Mid-Atlantic O&G analyst friend discusses the declining borrowing capacity of E&P companies.

4.  Arctic Newswire/ADN by Laurel Andrews.  Royal Dutch Shell’s Noble Discoverer drillship left Dutch Harbor Monday afternoon....

5.  Canadian Oil Sands Boom Dries Up, by Ian Austen, New York Times/ADN.


Alaska Support Industry Alliance Trade Show: get your booth before they are gone!  MEET ALASKA will convene on Friday, January 8, 2016, at the Denai’na Civic and Convention Center. Here are the tradeshow application and the layout with numbered booths. The following booths are available today:  8, 10-13, 16-18, 21, 24-29, 34, 35, 37-39, 42-45, 47-49, 57, 58 and 60-63.  Enjoy!  -dh


FERC has full workload with LNG export projects

Larry Persily, Federal Coordinator, Alaska gas pipeline, LNG, North American Gas Forum, Kenai Peninsula, Photo by Dave HarbourBy Larry Persily lpersily@kpb.us (NGP Photo)
Oct. 13, 2015
(Larry Persily, assistant to the Kenai Peninsula Borough mayor, attended a North American gas forum in Washington, D.C., and prepared this report as part of the borough’s ongoing efforts to share information about LNG market developments. No borough funds were spent on travel.)
It’s a busy time for LNG project applications at the Federal Energy Regulatory Commission.
FERC has files open for almost two dozen proposed liquefied natural gas export terminals. That’s in addition to the five projects already approved by the agency. It was less than a decade ago that federal regulators had almost twice as many proposals for LNG import terminals — but that was before the U.S. shale gas boom ended any need to bring in gas from overseas suppliers.
The proposed export projects are scattered across the country, as far east as Maine, south to Georgia and Florida, all along the Gulf Coast and as far north as Alaska — seemingly anywhere there is a pipeline to move the surplus of U.S. shale gas to the coast for liquefaction and shipment to overseas markets. Or, in the case of Alaska, moving an almost 50-year-old gas discovery to market.
The agency is devoting more resources to its Office of Energy Projects to handle the workload, Joseph Kelliher (NGP Photo-R, with Dave Harbour), a former FERC chairman, said at the annual North American Gas Forum in Washington, D.C., Oct. 5-6. The higher the quality and the more complete the application — its environmental reports, data and details —the faster it will move, he said.
Less local controversy also helps, Kelliher added.
But multiple challenges from fossil fuel and LNG project opponents are slowing down the process, he said, as FERC spends more time on each environmental review.
Tony Clark, FERC, NARUC, North American Gas Forum, LNG, Alaska, Larry Persily, Photo by Dave HarbourFERC Commissioner Tony Clark NGP Photo) delivered the same message. The agency works harder and longer on each project to produce a thorough environmental review and decision that will stand up to the expected challenges in court. Several speakers noted it can take two years, or more, to receive a final environmental impact statement and decision on an LNG terminal from FERC.
Regardless of increased opposition to energy projects, the applicants — and the public — deserve timely decisions and certainty of law, Clark said. He cited the seven-year wait by TransCanada for a State Department decision on the proposed Keystone XL Alberta-to-U.S. oil sands pipeline as a “debacle.” The State Department, not FERC, decides on cross-border pipelines.
Most of the U.S. shale gas bonanza, however, is staying at home. This past spring, for the first time ever, natural gas produced more electricity in the United States than coal-fired power plants. “It was just an absolute sea change that no one could have predicted,” Clark said.
Moving all that gas from shale formations to domestic customers and to the coasts for export requires a lot of pipeline capacity, much of which used to move in different directions from traditional gas-producing areas. “We’re changing the piping of the United States,” said Octavio Simoes, president of Sempra LNG, which is building an export terminal at Hackberry, La.
For example, instead of moving Gulf Coast gas to the mid-Atlantic and Northeast, pipelines will need to transport Marcellus Shale gas from Pennsylvania and Ohio to the Gulf Coast for export as LNG.
The boom in shale gas production has made the United States a must-see for foreign buyers of LNG, looking for new supply sources to diversify their portfolio. And looking for lower prices.
Most U.S. gas is quoted as “Henry Hub,” the name given to the pricing point for natural gas futures contracts. The trading benchmark is a distribution hub where several major gas pipelines connect in Erath, La. Simoes told the story of a group of overseas buyers who wanted to tour the “Henry Hub,” mistakenly thinking there might be something to see. But Henry Hub is merely an aboveground metering station. “There were 40 of them and they took a lot of photos,” Simoes said.
Sempra’s project, called Cameron LNG, is adding liquefaction and export capability to an underutilized import terminal. Commercial operations are set to start in 2018, Simoes said, and already Sempra is thinking about expanding the plant’s capacity.
Until global LNG markets settle down and develop a new pricing structure, Sempra expects to see more short-term contracts rather than the traditional long-deal deals.
Too much new supply going after weak demand, coupled with the lowest prices in years, is making it tough on developers thinking about investing in new projects. Several speakers said that reluctance could mean tight global supplies in the 2020s.
“We think there is substantial risk of supply the end of the decade and into the next,” said Anatol Feygin, a senior vice president at Cheniere Energy, which is scheduled to open in Sabine Pass, La., the first LNG export terminal in the Lower 48 states by the end of the year.
There have been a lot of big changes in global LNG markets in just the past few years with new, lower pricing options, more flexible contract terms, and multiple new supply options from Papua New Guinea, Australia, the United States, as well as hopefuls from Canada to Israel to East African nations. “The world has not yet recalibrated to this new normal,” Feygin said.
Until that adjustment, low prices and fears of a long price recovery add uncertainty to investment decisions. “The economics on projects are quite stressed,” said Don Lemoine, vice president for gas monetization at global construction contractor Kiewit Energy Group.
Despite the turmoil, some fundamentals remain important. Buyers want known, reliable suppliers with a strong balance sheet, Simoes said. And suppliers still need long-term sales contracts to underpin the billions of dollars in financing needed to build an LNG project. Without that matchmaking, companies will not make final investment decisions and the market could be short of gas in the 2020s — and buyers will complain about high prices as they did in the past few years.
In addition to the Sempra and Cheniere projects, three other LNG export terminals are under construction in the United States — two in Texas and one on Chesapeake Bay in Maryland. And though U.S. LNG export promoters talk a lot about selling into the large Asian market, Europe and several emerging markets look good, too, Feygin and Simoes said.
“We’re not putting as many eggs … into the Asian basket as we did two or three years ago,” Feygin said of Chienere’s marketing efforts. Asian demand will depend in great part on how many nuclear power plants are restarted in Japan, and whether China’s economy and energy demand returns to strong growth. European demand will build over time, Feygin said, as will the Middle East which is increasingly looking at LNG to fuel its electrical generating plants.
Add to the list Pakistan, Thailand, the Philippines, South Africa, Argentina, Brazil and Chile, Simoes said. All are buying more LNG or starting to import the fuel. “I could go on and on with the list.”
How much European LNG demand grows will depend on the price of oil as a competing fuel, whether countries impose or raise carbon taxes, if local gas production continues to decline, and how much Russia fights — and lowers its prices — to protect its prime market.
“Russia has learned its lesson,” and is offering better contract terms, said Svetlana Ikonnikova, an energy economist at the University of Texas at Austin. Russia’s big exporter, Gazprom, makes most of its profits from gas sales to Europe and has taken note that many of its customers can take LNG as an option.
Some, like Lithuania, opted for a floating import terminal, rather than building a much more expensive and time-consuming onshore project. The floating storage and regasification unit (FSRU) takes delivery from an LNG carrier, stores it onboard until it is needed, then regasifies the fuel and pipes it to shore.
Egypt just tied up its second FSRU, and Jordan and Pakistan are also turning to floating terminals, along with several South American countries. At least nine older LNG carriers have been sold this year, likely targeted for eventual conversion to FSRU vessels. Global FSRU import capacity jumped five-fold between 2008 and 2015, and could reach 130 million metric tons of LNG per year by 2021, Feygin said.


Today’s Blog – Tuesday 13th October 2015

by AO&GOblogster

Please pass on this blog to others you think may like to read it


Data from two separate sources confirms what many industry observers currently consider to be the case: the oil patch is currently in liquidation mode.

The first data point is in respect to exploration expenditure.  Without exploration, reserves cannot be replaced, let alone expanded, but expenditure on this critical input has been slashed in the last couple of years.  Recent data from energy specialists, Tudor Pickering Holt (TPH) expects the exploration spend in 2016 (for the companies it covers) to be around half what is was in 2013.

And 2013 expenditure fell dramatically short of delivering discoveries that would cover consumption.

Furthermore, TPH's coverage universe is basically the larger companies in the global private sector - who are the drivers of exploration much more than the NOCs.

The second data point covers that other source of new reserves for the larger oil companies - acquiring their smaller brethren.  However this sector has also seen a dramatic decline in expenditure.  Dollars spent on acquisitions in the last quarter only totalled US$18B - 60% less than the quarterly norm in the preceding six years.

As Shell's CEO Ben Van Beurden noted last week, this lack of current investment creates the material risk of an oil shortfall and associated price spike in years to come.

Commodity prices

Crude oil prices fell ~5% over-night, with Brent closing at US$50.22 and WTI at US$47.38.

This fall feels like a not unexpected natural re-tracement and profit-taking following last week's large rise.  Goldman Sachs is currently a vocal bear and its influence on markets can be material.

The particular "numbers" that catalysed the bears on the day was the release of OPEC's monthly report, which showed that its production had increased by 100,000 bopd to 31.57mm bopd (somewhat larger than the official quota of 30mm bopd).  Saudi exports have been increasing as its own demand (summer related - for air conditioning) has relaxed in recent months.

In addition to pumping as hard as they can for revenue raising reasons, the Sunni world is also grabbing as much market share as it can prior to more Iranian oil coming back to market.

Over at Henry Hub, last night we saw a small rise to US$2.54.


The owners of the shiny new liquefaction plants coming on line in Australia have been (rightly) pointing out that, notwithstanding their current travails, these are very long life assets that will generate cash-flows for decades to come.

The longevity of liquefaction plants was recently emphasised by Alaska's Kenai plant seeking Federal authorisation to export more gas.  Kenai delivered its first cargo in 1969 and it looks like it will still be selling gas on its 50th anniversary.

South of Kenai, in British Columbia, mixed messages continue to emerge in connection with the Province's supposedly most advanced LNG project, the Petronas led Pacific Northwest project.  On the one hand, last week a Petronas spokesman re-assured stakeholders in Canada that the company was still committed to the project.  On the other hand, back home in Malaysia, local analysts have said the project is likely to be deferred to next decade.

On this issue, as in many others, one should always "follow the money".  Petronas, and its owner the Malaysian Government, arguably does not have the discretionary funds to invest in an expensive overseas project at this time.


Oklahoma continues to suffer from seismic events that have a potential causal link with oil patch activities.  On Saturday a 4.5 strength earth-quake was felt in the key oil hub of Cushing.   In response, the State Regulator (no enemy of the oil patch) ordered the suspension of local produced water re-injection activities.

Meanwhile over in Australia, the South Australian State Government is keen to be seen to "do something" about the closure of the State's only coal mine at Leigh Creek.  To that end it is assisting the promotion of the coal gasification potential of the remaining coal deposits by a small ASX listed company called Leith Creek Energy.

Given the history of coal gasification in Queensland, what could possibly go wrong?

Company news - Santos (STO)

STO yesterday announced an imminent 200 redundancies (on top of around 600 already made earlier this year).  Perhaps your Blogster should postpone his visit to STO's offices asking whether they want to sign a lucrative contract to receive this blog?  Still, the company has the funds to pay for the wages of both of its current CEOs.

As has become customary, The Australian Financial Review (AFR) today provided a brief update on the company's asset divestment process. Today the focus seemed to turn away from the Western Australian assets back to PNG.

Company news - Central Petroleum (CTP)

The AFR also today had a bullish piece on the proposal to link gas resources in the Northern Territory with Eastern Australian though the "NEGI" gas pipeline project.

It appears that the AFR was charmed (or bulldozed?) by CTP's well known CEO, Richard Cottee (more commonly known in the media as "the ebullient Richard Cottee") into giving somewhat more weight to the chances of the project going ahead than do the cynics like this blog (once I hear stories about investment grade sellers with reserves signing deals with investment grade buyers, I will instantly change my tune).

Company news - CNPC

Massive Chinese NOC CNPC (parent of PetroChina) is hardly an Australian company, but overnight news from it has implications in every country in which it invests.  This was the handing out of a 16 year jail sentence to its previous leader Jiang Jiemin for corruption. This followed the conviction earlier this year of another previous company chief, Zhou Yongkang.

Managers across the Chinese NOCs will be increasingly cautious about taking any business risks, even entirely legitimate ones, in case they could be tarred with a corrupt brush.

Quote of the day

Speaking of the ebullient Richard Cottee, a confidential source of this blog told the tale of Richard's analysis of his time at ill-fated Nexus Energy (more sensitive readers should turn away):

"Before I joined I knew I was going to be fed a sh*t sandwich.  What I didn't know was there would be no bread!"


From our Mid-Atlantic O&G analyst friend (COMMENT: Please read carefully and apply this trend to the importance of state and provincial governments supporting and not opposing LNG other O&G projects.  That is, if they want the jobs, reasonable (i.e. and not confiscatory) revenue from such projects in an era of low prices and heightened, worldwide competition.  -dh)

One of the largest open questions this fall affecting NA shale operators has been the extent to which banks will lower the borrowing capacity of E&Ps. There is a confluence of negative factors weighing on this evaluation that were not present in the past. Among them:

·        Lower natural gas prices than the prior three years

·        A whole year of depressed crude oil prices, and lower at this time of the year than last year

·        A major decrease in hedged future production

·        The likelihood that many E&Ps will reduce their previously booked reserves, especially PUDS

In effect, the banks are not going to have much to work with in giving the E&Ps any kind of break.

A recent report from RJR describes the process the banks will go through in the current round of redeterminations, and their estimate of the results. This should have a major impact on production going into 2016, and may directly affect the viability of a number of the producers. The next step: How do larger E&Ps approach the distressed? How do the Private Equity firms approach the distressef?

RJR speculates that the redeterminations may get even tougher next year, going into 2017. On the “bad activity begets bad activity” theme, it may be possible, but we are not on board with that yet.  There are too many variables and inputs.

In coming months, E&P borrowing could be down 20-25%.



10-12-15 International LNG Market Turmoil Makes Government Support Critical

12 October 2015 10:22am

The Alaskan & Canadian LNG Sagas Continue Amid International Market Turmoil
Commentary by
Dave Harbour
From our mid-Atlantic oil and gas analyst friend comes his comment on two articles addressing the global LNG market.  


As chance would have it, our Aussie oil and gas analyst friend also commented on the Bloomberg article noted column-right, and below is his comment on LNG competition.  

These two observations from two different parts of the world, from two objective observers, should sober up some of our Alaskan and Canadian public officials.  

We are referring to those elected officials who have looked at LNG not as a massive, good, free market project--but as a goose to cook before it could lay its golden eggs.


Over the weekend The Australian Financial Review (AFR) picked up on a Bloomberg story about the current woes facing the LNG supply market.  As this blog has noted constantly, that market is currently very long.

The extent of this length was captured in this news story very effectively through the statistic that only one in twenty of the world's currently mooted LNG projects is actually required to meet market demand by 2025 (according to respected energy consultancy IHS).

To be one of those five, a project is going to have to very competitive.  Given the usual competitive advantage that brownfield developments have, greenfield projects, particularly in higher sovereign risk locations, look like they will be pushed out for potentially decades.

All of our international references and commentary have as much relevance to our Canadian as to our US readers.  

This is true for several reasons: 1) Before the shale revolution (i.e. the worldwide abundance of gas), the North American gas market pretty much revolved around Henry Hub.  International markets often used some market basket formula of oil prices upon which to base 20-year gas / LNG contracts.  More and more, LNG has become the great equalizer and the current pricing standard in favor seems to be spot market pricing--in some cases based on Henry Hub.  2) Today's energy marketplace finds Asia-landed LNG prices this summer/fall that are half the prices 20 months ago--or less.  3) The gas shale boom resulted in an LNG project boom.  Due to low prices, many of the projects are on hold or have been discontinued.  Even so, a number of new plants are either now opened or soon to commence operations.  4)  It is into this brave new world of international LNG competition that the Alaskan and Canadian LNG projects hope to compete and win.  5)  The international turmoil extending from the Chinese South China Sea islands, to Russian hegemony in Europe and Syria along with Islamic terrorism everywhere adds an additionally concerning risk to all large, international capital projects.  6)  Canadian projects have been plagued by demands of local stakeholders but helped by B.C. legislation.  The Alaskan project is plagued by extraordinarily high capital costs.  It also must consider an unsustainable state budget deficit that stimulates more "Tax Big Oil" populist rhetoric, and an administration which daily grows more hostile to its major investors: the oil & gas industry.
Our conclusion: Alaskan and Canadian governments had better put minimal demands upon and maximum support toward LNG projects that could provide jobs and economic vitality to their regions for generations to come.  
We urge elected officials everywhere to remember the maximums that, "while he who has the gold may make the rules," it is also true that "100% of a failed LNG project is nothing."
With these factors in mind, we think our astute readers will find more data points in our friend's observations, below.   -dh

Our mid-Atlantic analyst friend first references a Bloomberg article, ("85 gas projects dying on the vine as LNG’s promise falls short​"),  that focuses on just how many projects around the globe are likely to be superfluous, if built. The biggest potential source of unneeded projects is in Canada, due in part to likely delays in completion if they are actually constructed. The second largest source of projects that are either shelved or uneconomical if built are in the US.

·        The second article, from this week’s Platts Gas Market Report, summarizes arguments by LNG export executives as to why the skeptics should be considered wrong. Maybe it is just a cloud in the mind of this writer, but the bases for their points appear sadly devoid of logic or substance. If we read them correctly, they have three main points:

1.  The European market may provide a source of demand in the future. There may be some increased future demand (but far into the next decade), but only if the price stays abysmally low. And this is hardly the point of chasing market differentials.

2.  Supply will create demand. But again, the price has to stay low, which means that a lot more cost has to come out of the average (not marginal) cost of production. And this will also be back-ended, and free of twenty- year contracts.

3.  Analysts have been wrong in the past, so they must be wrong this time.          Actually, the quote is: “ if you look back, there weren’t that many consultants that ever really forecast many things right when they happened.”  

I suppose this also goes for the analysts that forecast a huge growth in global LNG demand a few years ago. Enough said on this sad support comment for their position.

Our opinion is that the Bloomberg article actually understates the amount of capacity currently being considered that will be excess, if built, for at least the first few years it hits the market. The big question, in our mind, is just how overbuilt the market will become over the next ten years? If, in fact, twenty-year take-or-pay contracts are no longer the norm, how many LNG developers will find a way to fall victim to a variant of the Orlando Hotel Syndrome?

10-11-15 Alaska Governor Continues Career-long "Brawl" With Alaska Oil Industry

11 October 2015 8:40am

Alaska Governor Continues Career-long "Brawl" With Alaska Oil Industry

ADN, Op-Ed by Paul Jenkins, Anchorage Daily Planet.  If reasoned leadership in this state sold for $1 billion a gram, we would have to scratch like chickens in a dusty barnyard to come up with a penny’s worth. If we could peddle ineptitude for a dime a ton, we would be rich.

Let’s review: Our Swiss cheese fiscal ship is belly-up and sinking like a stone. Alaska suffered a $3.5 billion deficit last year; it faces $3 billion in red ink next year. Oil pays the bills. Its prices are skidding and may crater. Credit-rating agencies are circling like vultures. There is talk of taxes, using Permanent Fund earnings, almost anything to raise money. There is little -- make that no -- good revenue news on the near horizon. In short, we are well and mightily hosed.

The only glimmer: Alaska is partner to ExxonMobil, ConocoPhillips, BP and TransCanada in building a proposed $65 billion Alaska LNG Project. The idea is to pump North Slope gas through an 800-mile pipe to Nikiski for liquefaction and shipment to Asian buyers. The project is in its earliest phases, and even if completed, will not pull the state’s fiscal fat out of the fire. In fact, according to Larry Persily, former federal Alaska gas line coordinator, it likely would generate only $1.5 billion in net revenues annually to the state general fund when operational -- not enough to fully fund state government, but a nifty start.


Gov. Bill Walker has apparently spent so much of his professional life as a lawyer brawling with the oil industry he sees conflict as de rigueur. Since election, he seemingly has spent as much time and energy trying to sink the LNG project as he has trying to make it fly.

Hey, he announces in a commentary published in Alaska Dispatch News, let’s expand the $10 billion Alaska Stand Alone Pipeline to compete with the LNG project -- just in case the companies do not do what we want. He wants to bleed off $100 million or so from the Constitutional Budget Reserve, buy out TransCanada, expanding Alaska’s ownership -- and risk -- to 25 percent of the entire project, not just 25 percent of the LNG plant. Now, he wants to expand the project’s pipeline diameter to 48 inches, adding $40 million to the price tag for studies and possible delays.

His kibitzing finally set off ExxonMobil Chairman Rex Tillerson, who fumed Alaska is its own worst enemy, changing horses in the middle of every stream it crosses. 

For his part, Walker says it is unthinkable producers may not market their gas and he demands “project certainty” from them, ignoring business reality: It must make economic sense no matter what he wants. (Regardless of the governor’s skepticism, an Alaska Oil and Gas Conservation Commission filing by BP and ExxonMobil last month seemed to indicate they are dead serious about the project.)

Despite his blustering, Walker appears to understand the companies are slaves to economics. At a recent news conference he said, “The market is going to determine if it’s going to happen. The financial markets are going to determine if it’s viable.”

Yet, there is his most recent insanity -- the call for a reserve tax on gas not earmarked for the project.


“It’s time Alaska acts like the sovereign that we are, and make sure we have some leverage and act as an owner state,” Walker told The Associated Press.


Look at it from the companies’ perspective: The state is a partner in the project -- until it wants something. Then, it becomes a sovereign taxing authority and steps back to flex its muscles. Afterward, it comes back to the table as a partner. How is a company with fiduciary responsibility to its shareholders supposed to deal with that? 


Alaska, indeed, is a sovereign state, but Walker is not king. He cannot muscle private companies -- any companies -- into something uneconomic. Threats, heated rhetoric, taxes, bullying, state-funded competition -- none of it gets us closer to a gas line. It may, in fact, get the state closer to losing partners....

Read the entire Op-Ed here.

Paul Jenkins is editor of the AnchorageDailyPlanet.com, a division of Porcaro Communications.


10-10-15 Taking A Hike Without A Map

10 October 2015 5:53am

Mike Chenault, special session, Alaska Legislature, Alaska LNG, Speaker of the House, Reserves Tax, Photo by Dave HarbourPetroleum News by Steve Quinn.  House Speaker Mike Chenault (NGP Photo) says he’s ready to come back to Juneau for a special session addressing two developments on the state’s pursuit of a natural gas pipeline and an LNG export facility. But the Nikiski Republican adds that he remains in the dark on Gov. Bill Walker’s plans....  (Comments: Citizens should be embarrassed for and ashamed of a governor that calls a special session of the legislature and does not accompany that call with proposed legislation.  Even if the governor provided draft bills addressing to the two subjects of the 'call' Monday morning, he has denied lawmakers at least a week's worth of planning time.  In essence, he has used his Constitutional power to order them to take a hike but does not provide a map to the destination.  If I were a legislator, my propensity under such conditions would be go go into session, call for a vote to adjourn and do so immediately.  Alternatively, legislative leaders could use the time to focus the public's attention on the great risk citizens face, were the governor's ideas converted into law of the land.  (See yesterday's commentary on "risk", including our radio interview.  -dh)

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