Log onto Alaska Headlamp for its useful report today!

Our venerable, mid-Atlantic energy analyst friend is worried about overcapacity of gas transportation projects: Alaska and Alberta, are you listening?  Read more….  AND … our Aussie energy analyst friend relays the story of Anadarko's interest (i.e. subsequently withdrawn) in taking over Apache Corporation.  Read more….   -dh

Low Oil Prices Loom Longer…. CBC.  Oil prices are likely to remain low over the next five years because of plentiful supply and falling demand in developed countries, the International Energy Agency said Tuesday in its annual forecast.  The Paris-based body, which advises developed countries on energy policy, says it expects oil prices to return to $80 per barrel in 2020, with further increases after that.

Fiscal problems "loom" over Alaska & Alberta oil Economies; liberal leaders are hostile to the oil industry but seem pressured into giving it lip service!  -dh

Alaska Journal of Commerce by Tim Bradner.  …time for the big Resource Development Council annual conference.  … huge issues loom for Alaskans including the proposed $50-billion plus North Slope gas pipeline and liquefied gas project and the state’s … $3 billion-plus annual deficits.

If Alberta Premier Rachel Notley is supportive of the oilsands and of "…a strong energy industry…," we wonder what her message will be when she joins the world's other socialist leaders — including America's — for the International Climate Change Summit in Paris.     See our earlier Paris Summit commentary, "Killing Capitalism".    -dh

Calgary Herald by Don Braid.  Stand back. Environment Minister Shannon Phillips has something to say about claims that she’s out to shut down the oilsands.

“I categorically reject this charge that I’m somehow against the oilsands,” says Premier Rachel Notley’s most forceful minister, who heads to Paris in two weeks for the international climate change summit.

“It is false. I, like the rest of my cabinet and caucus, know that we are — and will be for the foreseeable future — an energy economy.”

“I’ve said this every single time I speak publicly on the matter . . . we are going to build economic diversification on the back of a strong energy industry. I’ve never felt any differently on the matter.”

 

From: Our mid-Atlantic energy analyst friend re: potential for gas transportation overcapacity.

We have discussed the deplorable state of natural gas pricing, skating just above $2/Mcf (and much lower, for many Utica / Marcellus producers, down below $1/Mcf). 

Conventional wisdom says prices should stay depressed for perhaps at least two more years, waiting for infrastructure to be completed that will direct the natural gas to waiting markets. All very convenient as an outcome.

But suppose:

·        The amount of pipeline infrastructure brought on line exceeds the demand for the natural gas in several, if not most, of the intended end markets.

·        The amount of natural gas available continues to exceed the end demand on a throughput (daily) basis.

·        Both situations happen.

It has been generally assumed that supply and demand will come into relative balance when the end the incremental end users (including LNG exports, incremental power generation, exports to Canada and Mexico, increased industrial demand, and feedstock uses, among others) get their acts together. It should be lumpy in coming together, but should happen at some point, given the attractiveness of a cheap supply of natural gas.

It has also been generally assumed that the pipelines to accomplish this should not greatly exceed the amount needed to create the eventual balance, i.e. not to greatly exceed demand. But there are so many MLPs and others chasing projects with cheap money, that the possibility of over-construction has never been higher. Why should the gas producers be the only ones to have the fun of driving their industry into the ground through excess competition?

We have seen forecasts of a high possibility that both producers and pipeline companies are traveling parallel paths to sustained over-capacity.

In 2010, we asked several infrastructure companies at a conference to tell us how they avoided building too much capacity. We received some answers as to how a given company measured the need for its projects. But we have never had it satisfactorily answered as to how competitors are kept from acting irrationally.

Bottom Line: We are not predicting that BOTH gas production and infrastructure will get overbuilt. But we will be watching for signs it is happening.