Alaskanomics

Alaska LNG Project Application Files Available Online

(This update, provided by the Kenai Peninsula Borough mayor’s office, is part of an ongoing effort to help keep the public informed about the Alaska LNG project.)
 

The Alaska Gasline Development Corp.'s LNG project application and accompanying resource reports are available online at the Kenai Peninsula Borough website:http://www.kpb.us/mayor/lng-project/lng-project-updates/1028-lng-project-application-files-available-online.

The state corporation filed its application with the Federal Energy Regulatory Commission on April 17, 2017. The more than 140 files include the latest project overview, proposed construction and operational plans, environmental reports and maps for the North Slope gas treatment plant, 807-mile pipeline through the center of the state, and the natural gas liquefaction plant and LNG export terminal proposed in Nikiski.

Some of the files are large and download time will vary with your Internet connection speed.

The Kenai Borough later this week will distribute to its email list (and post to its website) a project update and summary of the application.

The state of Alaska has taken over management of the project from North Slope oil and gas producers ExxonMobil, BP and ConocoPhillips, with the intent of proceeding to a construction decision by 2019 and first LNG exports in 2024. In addition to FERC’s preparation of an environmental impact statement and regulatory decision, that schedule is dependent on the state corporation’s success in signing up investors and customers, securing financing for the multibillion-dollar project, and favorable global LNG market conditions.

A few of the appendices to the reports (mostly data sheets) are too large to easily accommodate on the Kenai Borough server. If you are interested in these documents, contact Larry Persily in the mayor's office at [email protected]. All of the reports also are available from the FERC website at http://elibrary.ferc.gov/idmws/search/fercgensearch.asp. Enter CP17-178 for the docket number.

'Currently, a golden age for LNG buyers,' says global energy analyst

By Larry Persily

[email protected]

(Larry Persily, assistant to the Kenai Peninsula Borough mayor, was invited to participate in an LNG conference in Vancouver, B.C., and prepared this report as part of the borough’s ongoing efforts to share information about global LNG market developments. The conference paid the travel expenses.)
 
A global oversupply, low prices and market uncertainty have combined to make life difficult for gas producers and liquefied natural gas project developers. Demand for LNG will grow in time but “it is a very competitive market out there right now,” said Deepa Poduval, senior managing director at Black & Veatch Management Consulting.
 
“Development of new greenfield LNG mega-projects will be challenging worldwide in the near-term as pricing and supply overhang gets played out,” Poduval said at the 19^th annual BC Natural Gas Symposium in Vancouver. “There are a large number of sources of potential LNG supply. … It is currently a golden age for LNG buyers.”
 
An example of changing market conditions are the LNG supply contracts signed by buyers several years ago in anticipation they would need the gas. Japan’s Osaka Gas and also Chubu Electric Power, which is now part of the Japanese LNG-buying consortium called Jera, struck deals in 2012 to buy gas from the Freeport LNG project under construction on the Texas coast, with a scheduled start-up in 2018. But with weaker demand at home, both Jera and Osaka Gas are looking to sell volumes they have under contract from Freeport.
 
Buyers are becoming sellers, and buyers are also renegotiating for lower prices under their existing contracts, as India’s Petronet did 10 months ago when it succeeded in cutting almost in half what it pays for Qatari LNG by negotiating for new terms under the contract’s oil-price indexation.
 
In addition to multiple other clients, Poduval during the past 10 years has advised the state of Alaska, providing information to help state officials and the public better understand the economics of LNG projects. She did not offer any comments in her Vancouver presentation on the proposed Alaska LNG development or the state’s effort to take over control of the project from the three major North Slope oil and gas producers.
 
The state has said its target market is Asia, where Japan, South Korea and China are the big customers.
 
OVERSUPPLY IS GROWING
 
Buyers in those countries and elsewhere in the world can count all the new LNG export projects coming online in the past couple of years and in the next few years, especially in Australia and the United States, with even more hopefuls lined up for the next decade. As they count up all the oversupply, they see the opportunity to negotiate for lower prices. While annual global LNG production capacity utilization was about 85 percent 2011-2014, that utilization factor could drop closer to 75 percent by 2020, Poduval said in her Oct. 25 presentation in Vancouver.
 
Supply capacity, or overcapacity, after 2020 is anyone’s guess. Adding up just the LNG production and export plants proposed for the United States and Canada — not counting East Africa, Russia and other potential suppliers — the total is more than double projected worldwide demand in 2025, said Shelley Milutinovic, chief economist at Canada’s National Energy Board. Most of the proposed projects will not be built if demand does not materialize, and demand projections in some areas are slipping.
 
Canada’s oil sands projects use a lot of natural gas to create heat, steam and electricity for recovery of the thick bitumen. In January 2016, the energy board predicted oil sands demand for gas would hit 5 billion cubic feet a day by 2040, almost double today’s needs. But, with low oil prices knocking down oil sands investment, the energy board now projects demand might reach 3.5 bcf a day by 2040, Milutinovic said.
 
Regardless of possibly weaker demand in the oil sands, Canadian gas producers — like Alaska — are looking to the LNG market in Asia. Their historical main customer, the United States, has plenty of gas from its own shale fields. The U.S. has added more than 21 bcf a day of gas production since 2008, equal to 140 percent of total Canadian production and taking away market share from its northern neighbor.
 
U.S. LOOKS TO EXPORTS
 
The massive build-up in U.S. gas production has propelled the country into the export business, with four large LNG terminals in various stages of construction in Louisiana and Texas and a smaller project in Maryland. It’s generally not gas producers, however, that are building those projects, but rather what have been called toll-booth operators that charge for their services. The “tolling model” is unique to the United States at this time.
 
The plant owner does not take the market risk of LNG prices — that’s up to the customer that reserves capacity at the liquefaction plant and has to pay for the capacity even if it doesn’t get used.
 
The price for most of the LNG delivered from the U.S. terminals will be the cost of the gas on the market, any pipeline charges to deliver the gas to the LNG plant doorstep, the cost of liquefaction including a return to the developer, and the cost of shipping to the customer. “Put together, that became your LNG pricing formula,” Poduval said. It was a much more attractive price for buyers than the traditional LNG contract linked to a barrel of oil on an energy-equivalent basis.
 
“In many minds, this was a slam dunk,” she said of the contracts based on lower natural gas prices in the United States rather than LNG prices based on $100-a-barrel oil of just a couple of years ago. “You saw people flooding to that first wave of contracts.” Osaka Gas and Chubu Electric were among the buyers caught up in that flood. That’s when oil-linked LNG was selling at $15 per million Btu and higher; the spot-market in Asia is now down to less than half that price.
 
But as U.S. natural gas prices have risen and oil prices have stayed low, it could cost at times more to buy Gulf Coast LNG linked to U.S. natural gas prices (closer to $9 per million Btu when the cost of the feed gas is around $3) than LNG priced at a percentage of a barrel of oil (around $7 to $8 per million Btu with oil at $50 per barrel). Japanese utilities are re-examining the move to U.S. gas-linked LNG pricing and looking for a mix of pricing variables, Poduval said.
 
Buyers, particularly in Japan, also have a desire to move away from more rigid, long-term gas supply contracts to shorter-term deals with more flexibility, she said, noting that the LNG-buying venture Jera expects to reduce its volume of LNG supply under long-term contracts by more than 40 percent by 2030.
 
“LNG pricing may trend toward more decoupling from oil with increasing share of spot trading,” she said in her presentation.
 
Not just pricing, but the buyers are changing too, Poduval said.
 
In 2015, Japan, South Korea and Taiwan imported 54 percent of the world’s LNG. By 2020, Black & Veatch estimates that will fall to 40 percent as total demand in the three countries holds flat. China and India are projected to double their LNG imports between 2015 and 2020, with emerging Asian nations to triple their imports. Total demand from China, India and emerging Asian nations could reach almost 80 percent of the annual consumption in Japan, Korea and Taiwan.
 
Low LNG prices have also attracted many small-market import countries that were uneconomical to serve in the past, helping to build new demand for the fuel.

All of Alaska LNG's draft resource reports available at borough website

From Larry Persily:

All 12 of Alaska LNG’s draft resource reports to the Federal Energy Regulatory Commission are now available on the Kenai Peninsula Borough website, totaling more than 120 files. Click here and select the report. (Some of the files are very large and download time will vary with your Internet connection speed.)
 
The reports are the second drafts submitted to FERC — the first were submitted in February 2015 — and will be reviewed by federal, state and local regulatory agencies. FERC also will accept public comments. The project applicant will then need to fill in any information gaps and provide additional details in its final reports to accompany a complete application to FERC.
 
The state of Alaska has announced its intention to take over management of the project application from its North Slope producer partners ExxonMobil, BP and ConocoPhillips, though it was uncertain as of mid-September when the state might complete the resource reports and file the final reports with FERC. The state had indicated it wanted to file in January 2017, but multiple issues between the state and the North Slope producers need resolution before then -- in addition to the state completing the final reports.
 
FERC would use the final reports as the base for its preparation of the project’s environmental impact statement. The reports provide detailed information on pipeline routing, waterway crossings, community impacts and multiple environmental issues for construction and operation of the liquefaction plant and marine terminal in Nikiski, gas treatment plant on the North Slope, and 804 miles of pipeline connecting the two facilities.
 
The reports and accompanying appendices available at the borough website are:
 

• No. 1 General Project Description, including detailed route maps
• No. 2 Water Use and Quality, and Wastewater
• No. 3: Fish, Wildlife and Vegetation
• No. 4 Cultural Resources
• No. 5: Socioeconomics
• No. 6 Geological Resources
• No. 7 Soils
• No. 8: Land Use, Recreation and Aesthetics
• No. 9: Air and Noise Quality
• No. 10 Project Alternatives
• No. 11: Reliability and Safety
• No. 12: No report 12 for this project
• No. 13: Engineering and Design Material

 

Alaska LNG Resource Reports 1-10 Available Online

By: Larry Persily

Alaska LNG’s second round of draft resource reports Nos. 1 through 10 have been filed with the Federal Energy Regulatory Commission and are available on the Kenai Peninsula Borough website. Click here to select and download the reports. The project expects to file its last two draft reports later in August: No. 11, Reliability and Safety; and No. 13, Engineering and Design Material.
 
Some of the files are very large and download time with vary with your Internet connection speed. A few of the appendices to the reports (mostly data sheets) are too large to easily accommodate on the Kenai Borough server. If you are interested in these documents, contact Larry Persily in the mayor's office at [email protected]. The reports also are available from the Federal Energy Regulatory Commission website at http://elibrary.ferc.gov/idmws/search/fercgensearch.asp. Enter PF14-21 for the docket number and set the date range for July 7, 2016, through July 26, 2016, to collect all of the resource reports and appendix files.
 
The environmental and construction planning reports are the second drafts submitted to FERC — the first were submitted in February 2015 — and will be reviewed by federal and state regulatory agencies. FERC also will accept public comments. Alaska LNG will fill in any remaining information gaps and provide additional details in its final reports. The final resource reports could be ready for delivery to FERC by the end of this year, along with a complete project application, though partners ExxonMobil, BP, ConocoPhillips and the state of Alaska are undecided on that next step due to weak market conditions, a global oversupply of LNG, and a lack of consensus on fiscal and commercial terms.
 
FERC would use the final reports as the base for its preparation of the project’s environmental impact statement. The reports provide detailed information on pipeline routing, waterway crossings, community impacts and multiple environmental issues for construction and operation of the natural gas liquefaction plant and marine terminal in Nikiski, gas treatment plant on the North Slope, and 804 miles of pipeline connecting the two facilities.
 
Reports available at the borough website are:

• No. 1 General Project Description, including detailed route maps
• No. 2 Water Use and Quality, and Wastewater
• No. 3: Fish, Wildlife and Vegetation
• No. 4 Cultural Resources
• No. 5: Socioeconomics
• No. 6 Geological Resources
• No. 7 Soils
• No. 8: Land Use, Recreation and Aesthetics
• No. 9: Air and Noise Quality
• No. 10 Project Alternatives

Expected later this month are:

• No. 11: Reliability and Safety
• No. 13: Engineering and Design Material 

Alaska LNG Resource Reports Available Online

By Larry Persily
July 20, 2016
 
Alaska LNG’s resource reports to the Federal Energy Regulatory Commission are available on the Kenai Peninsula Borough website. Click here and select the report. As of July 20, Report No. 1 General Project Description and No. 10 Project Alternatives are available on the website; others will be added as they become available in the next week or two. (The files are very large and download time with vary with your Internet connection speed.)
 
The reports are the second drafts submitted to FERC — the first were submitted in February 2015 — and will be reviewed by federal and state regulatory agencies. Alaska LNG will fill in any remaining gaps and answer agency requests for additional information in its final reports to FERC.
 
The final resource reports could be ready for delivery to FERC by the end of this year, along with a complete project application, though partners ExxonMobil, BP, ConocoPhillips and the state of Alaska are undecided on that next step due to weak market conditions, low prices and a global oversupply of LNG.
 
FERC would use the final resource reports as the base for its preparation of the project’s environmental impact statement. The reports provide detailed information on pipeline routing, waterway crossings, community impacts and multiple environmental issues for construction and operation of the liquefaction plant and marine terminal in Nikiski, gas treatment plant on the North Slope, and 804 miles of pipeline connecting the two facilities.
 
Alaska LNG filed reports No. 1 General Project Description, which includes detailed project maps, and No. 10 Project Alternatives on July 8. It filed reports No. 2 Water Use and Quality and Wastewater Discharge, No. 4 Cultural Resources, No. 6 Geological Resources and No. 7 Soils on July 19-20 and those files will be added to the borough website soon.
 
Other reports are expected within the next couple weeks: 

• No. 3: Fish, Wildlife and Vegetation
• No. 5: Socioeconomics
• No. 8: Land Use, Recreation and Aesthetics
• No. 9: Air and Noise Quality
• No. 11: Reliability and Safety
• No. 12: PCB Contamination
• No. 13: Engineering and Design Material

Alaska LNG outlines issues for next round of resource reports

Written by Larry Persily for the Oil and Gas news brief email

April 26, 2016
 
(This update, provided by the Kenai Peninsula Borough mayor’s office, is part of an ongoing effort to help keep the public informed about the Alaska LNG project.)
 
Alaska LNG’s next round of environmental and construction planning reports — called resource reports — will address issues raised by regulatory agencies and the public, including why the project picked Nikiski as the site for its proposed natural gas liquefaction plant and how it would reduce impacts on highways, recreation activities and tourism during construction and operations.
 
Moving millions of cubic yards of gravel, hundreds of miles of pipe and thousands of workers and pieces of equipment during several years of construction will rely on every transportation route into and around the state including highway, rail, water and air. The project is “developing a transportation plan that will minimize the direct and indirect impacts of project construction to transportation and traffic,” Alaska LNG reported in an April 7 letter to the Federal Energy Regulatory Commission.
 
The potential impacts and a high-level overview of a proposed transportation mitigation plan will be discussed in Resource Report No. 5, Alaska LNG told FERC. That report will cover a lot more than transportation. Labeled the socioeconomics report, it also will detail the project’s potential effects on communities including the job market, population, housing, schools, and government and community services.
 
The socioeconomics review is one of 13 reports FERC requires from LNG project applicants. The reports provide a base for FERC to draft its environmental impact statement and for regulatory agencies to ensure they have the data needed for their permit and authorization decisions.
 
Alaska LNG is in its fourth year of gathering and analyzing data for the reports. A first draft was submitted in February 2015, with the second draft this summer to weigh in at thousands of pages and with much more detail and a first look at steps to lessen environmental and community impacts — and also a look at the benefits of the development estimated at $45 billion to $65 billion. Final details of the transportation plan and other measures would come when Alaska LNG submits its full application for FERC authorization.
 
REPORTS EXPECTED BY JUNE
 
The project plans to file its latest draft reports during the second and third quarters this year, Alaska LNG said in its April 7 letter to FERC. The letter did not specify a schedule, though an April 8 state agency presentation said the first two reports were being updated by project teams for a final review by the partners in May before submission to FERC. Those first two reports will be No. 1, the general project description, and No. 10, project alternatives.
 
Regulatory agencies and the public will have an opportunity to comment on the draft reports before Alaska LNG submits its final reports and project application to FERC — which could come in 2016 or 2017, though there is no required deadline and no project commitment at this time.
 
The partnership of North Slope oil and gas producers ExxonMobil, BP and ConocoPhillips, along with the state of Alaska, is looking to complete its preliminary engineering and design work this year, concurrent with commercial, operating and fiscal negotiations, working toward the next decision point later this year or next on the multibillion-dollar project to move North Slope gas to market.
 
While working to finish and submit the second round of draft reports, Alaska LNG crews will be back in the field this spring and summer, collecting more data for project design and construction decisions. The field work will be reduced from last year.
 
SUMMER FIELD WORK INCLUDES COOK INLET
 
Alaska LNG teams briefed Kenai Peninsula residents April 14 on this year’s field work, which will include continued soil sampling and mapping of the seabed floor between where the pipeline would enter Cook Inlet on the west side and where it would come ashore north of the LNG plant site on the Kenai Peninsula.
 
The geophysical and geotechnical work started in early April on the west side of Cook Inlet, with a 240-foot-long vessel lowering a 3-ton piece of equipment to the seafloor to vibrate into the seabed and pull up core samples from approximately 15 feet below the seafloor. Crews pulled 15 samples on the west side of the inlet, working in slack water as the vessel used its six thrusters to hold position on site. Work will later move to the Kenai Peninsula side of the inlet — but not before Alaska LNG talks with setnetters in the area to ensure the work is compatible with fishing activities — with plans to wrap up Cook Inlet work in June or July.
 
Seafloor mapping along the almost 30-mile pipeline route across the inlet is scheduled to start in a month or so, as the project team continues working with federal agencies on necessary approvals.
 
Additional onshore soil-sample boreholes will be drilled in the area of the proposed LNG plant site, focusing on ensuring that the ground can handle the heavy weight of storage tanks and plant equipment. (Each of the two LNG storage tanks would be large enough for a Boeing 747 to spin around inside the walls.) The project plans to drill about 50 boreholes this year, “to really hone in on the proposed equipment locations,” an Alaska LNG team member reported at the community meeting.
 
Project teams also reported on the marine trestle that would extend out from the plant, carrying an LNG pipeline to twin loading berths in deep water. The latest plan for the trestle has it extending approximately 3,300 feet from the shoreline (3,900 feet from the bluff), with vertical supports every 120 feet in the water.
 
The liquefaction plant, storage tanks, marine terminal, gas-fired generating plant and everything else at the Nikiski site add up to a huge investment. “You’re talking of an LNG plant that is north of $20 billion,” Michael Britton, plant manager for Alaska LNG, told the Kenai audience. The plant is likely to represent more than 40 percent of the project’s total cost, he said.
 
Alaska LNG continues to talk with Nikiski property owners in its quest to buy the 800 to 900 acres needed for the plant and safety zone. The project has struck deals on more than 600 acres.
 
AQUIFER TESTS NEW THIS YEAR
 
New for this year are plans to perform test pumps in the area of the plant site to investigate three aquifers of different depths. The project believes the deepest of the three is confined and does not mix with the two shallower aquifers.
 
The project wants to learn more about the aquifers as it determines the best way to supply water for the plant during construction and operations. The water pulled up in the tests will be discharged into a nearby rock quarry purchased by Alaska LNG, where the water will infiltrate back into the ground.
 
In addition to data gathering, Alaska LNG plans to demolish 20 structures on property it purchased for the plant site, removing environmental hazards and vacant buildings as part of its property management.
 
Alaska LNG has explained at several public presentations the past year why it selected Nikiski as the preferred site for its liquefaction plant, and will explain it again — in more detail — in the project alternatives report (No. 10). The report will cover why it selected Nikiski rather than Valdez or other Southcentral Alaska sites, and why it decided not to build the plant on the North Slope which would have eliminated the need for a costly 806-mile pipeline through the state.
 
In a filing with FERC, Alaska LNG noted that eliminating the pipeline through the center of the state would “severely limit opportunities” for Alaskans to tap into the line for gas. It also listed other negatives for building the LNG plant on the North Slope: shallow nearshore waters, extreme weather, ice conditions and higher construction and operating costs.
 
“A detailed analysis regarding the proposed site (Nikiski) and a robust range of site alternatives considered but eliminated by the applicants … will be included in Resource Report No. 10,” Alaska LNG advised FERC in its April 7 letter.
 
PROJECT TEAMS RECOMMEND 42-INCH PIPE
 
In a review separate from its alternatives report to FERC, Alaska LNG teams spent the past five months — and about $20 million — analyzing the pros and cons of sticking with the original plan to use 42-inch-diameter steel pipe for the line from Prudhoe Bay to Nikiski, or switching to 48-inch pipe as proposed by Alaska Gov. Bill Walker to accommodate future, unknown gas discoveries. The project team has recommended to the partners that they stay with 42-inch pipe, based on project design impacts, cost, availability and construction risk.
 
It’s not like the smaller pipe would limit expansion of the project’s capacity: It could handle a third more volume by adding additional compressor stations along the line to push more gas into the pipe.
 
An alternatives decision for Alaskans — but not for FERC — is the location and build-out from the pipeline for in-state gas distribution, called off-takes. The build-outs are not part of Alaska LNG, though the project will provide the interconnection points. The state will be charge of whatever happens from that connection point.
 
Determining the location of “technically and commercially feasible” off-takes is up to the Alaska Gasline Development Corp., which has the job of representing the state’s 25 percent ownership interest in Alaska LNG. The state corporation, which was created by the legislature in 2010, is working with the North Slope producers in project design and planning.
 
In its filings with FERC, Alaska LNG said its next round of draft reports will cover:
 
No. 1: General project description
In addition to detailed project mapping from the North Slope to the LNG plant in Nikiski, the report will provide a thorough overview of the entire project, its construction and operations plans, and timetables for construction. The maps “usually are a huge attachment” to the electronic file, a FERC official told federal, state and borough officials at a two-day workshop in Anchorage April 12-13. The construction timetable in Report No. 1 “is a big picture schedule,” the official said.
 
No. 2: Water use and quality, and wastewater discharge
The report will discuss the LNG plant’s water needs — and those of facilities along the pipeline and at the North Slope gas treatment plant — in addition to proposed water sources, potential impacts and mitigation measures.
 
No. 3: Fish, wildlife and vegetation
Habitat for fish and wildlife will be covered in the report, as will pipeline construction impacts on permafrost. Impacts on protected species and wildlife harvests by subsistence users also are important parts of the report.
 
No. 4: Cultural resources
Identification and protection of Alaska Native traditional cultural sites and other historic properties are required. To protect the sites, the locations will not be publicly disclosed.
 
No. 5: Socioeconomics
One of the most wide-ranging reports, No. 5 will discuss impacts on communities from construction and operations, and how they can be avoided or reduced. That would include traffic, sound and light pollution, and effects on tourism, schools, waste management, public services, emergency services and subsistence — a long list. The report also will look at the project’s benefits. Alaska LNG has contracted with the state Department of Fish and Game to conduct subsistence user surveys in communities along the pipeline route.
 
No. 6: Geological resources
Geohazards, such as earthquake faults and unstable soils, will be addressed, as will gravel sites for the millions of cubic yards of material that will be needed for construction. The report will include a preliminary gravel sourcing plan and reclamation measures.
 
No. 7: Soils
Pipeline construction through permafrost will be covered in the report (also Nos. 1 and 3), as will handling material from dredging operations at the Prudhoe Bay dock and the equipment offloading facility proposed for the LNG plant site at Nikiski.
 
No. 8: Land use, recreation and aesthetics
The report will look at impacts to tourism and recreational areas. “To the extent practicable, the project footprint would avoid recreational areas,” Alaska LNG told FERC. “In the instances where it would not be possible to do so,” the project would work with land managers and local organizations to develop site-specific plans.
 
No. 9: Air and noise quality
Air emissions during construction, particularly from heavy construction equipment, and during operations will be addressed. Underwater sound impacts on marine species will be covered, too.
 
No. 10: Alternatives
The LNG plant site and pipeline route alternatives considered by the project and raised by regulators and the public will be addressed in the report, including the best way to thread the pipeline through the tight area between Denali National Park, the Parks Highway, Nenana River, Alaska Railroad tracks, a deep gorge and the tourism-related business area known as “Glitter Gulch.”
 
No. 11: Reliability and safety
A big issue in this report will be operations at the liquefaction plant, proposed for a site near other oil and gas industrial plants and residential properties. Safety issues for building the high-pressure gas pipeline near the trans-Alaska oil pipeline also will be addressed.
 
No. 12: PCB contamination.
This report will be short; neither Alaska LNG nor FERC expect to encounter any PCB contamination issues in the project.
 
No. 13: Engineering and design material
This will be the most technical of the reports, including substantial engineering of the entire LNG facility.

Oil likely to stay below $80 a barrel until 2020, IEA forecasts

From Larry Persily's Oil and Gas News Brief

(Financial Times; London; Nov. 10) - The oil market will remain oversupplied until the end of the decade as the push for cleaner fuels and greater efficiency offsets the effect of lower prices, the world’s leading energy forecaster said. In its annual outlook, the International Energy Agency said oil demand would rise by less than 1 percent a year between now and 2020, slower than necessary to quickly mop up an oil glut that has driven prices to multiyear lows.

The slowdown in oil demand growth follows a near 15-year surge in consumption, driven by the rapid industrialization of China and other emerging market economies. But Beijing is now moving away from dirtier fuels and to less energy-intensive growth as it heads toward a more consumer-led economy. “We are approaching the end of the single largest demand growth story in energy history,” Fatih Birol, executive director of the IEA, told the Financial Times.

“Demand is not as strong as we have seen in the past as a result of efficiency [and climate] policies [globally],” he added, saying the growth in renewables will further restrict demand for oil. The IEA does not expect oil to reach $80 a barrel until 2020 under its “central scenario,” as excess supplies are slowly soaked up. After 2020, oil demand growth is expected to grind almost to a halt, increasing just 5 percent over the next 20 years, the IEA said. In its “low oil price” scenario, the agency said prices would stay close to $50 a barrel until the end of the decade.

Update on the Alaska LNG Project- Anchorage Make it Monday Forum

The companies working on the Alaska LNG project are working hard to keep the project rolling through the next stage. In the summer of 2015, there will be continuing fieldwork as the project prepares for the Environmental Impact Study (EIS). The Federal Energy Regulatory Commission (FERC) will conduct one EIS for the project that will be accessible to all federal agencies. A 550-800 acre land acquisition is in the works to provide space for the liquefaction plant and marine terminal in Nikiski. The US Coast Guard is also working on the Cook Inlet Waterway Suitability Assessment that will be needed for the project to proceed. Community meetings are continuing at all levels of the project. FERC has opened a 9-month scoping period for the public to bring forward their concerns and questions about the project.

The Legislature and the Governor are locked in a battle over Alaska’s future for LNG. Governor Walker wants the Alaska Gasline Development Corporation (AGDC) to move forward on a project with a higher volume pipe, as an alternative to the AK LNG project. He states that it is good to have alternatives to make sure LNG is viable in Alaska. The Legislature wants to pursue only the AK LNG project and feels that splitting focus will create market confusion and instability in the Alaska oil and gas industry. Anchorage Chamber of Commerce Make it Monday Forum Presenter Larry Persily noted that he felt that AGDC was like a child in the middle of a highly contested divorce/custody battle. The internal battle between the Governor and the Legislature continues to cause frustration for many working on LNG in Alaska.

There are reasons that the AK LNG project could fall apart as well as reasons for optimism that it will continue and become a reality. The global demand for LNG could come up short, Alaska’s competitors could beat us on price, Russia could pull Asian markets to their product, and Alaska politics could get in the way of success for the project. However, there are still reasons to be optimistic moving forward. Alaska’s LNG has high BTU content, we have proven reserves with no exploration work needed, we are a proven supplier, and Alaska is the shortest distance to Asia from the other North American markets.

AK LNG will continue to move forward in their work and the Governor and the Legislature will continue their battle through the end of session next week and beyond. There will be many more discussions on this in the coming months and even years.

Denali Discontinues Gas Pipeline Project

After three years of work, a $165 million investment, and 760,000 manhours of work, Denali - The Alaska Gas Pipeline announced today that it will withdraw its Federal Energy Regulatory Commission pre-file application and, over the next few months, close out its operations. Denali President Bud Fackrell said they were unable to secure binding agreement with shippers necessary to move the project forward. Read the Denali statement here. The Office of the Federal Coordinator issued a statement commending Denali for their efforts. Larry Persily, the Federal Coordinator, expressed his hopes that BP, ConocoPhillips, ExxonMobil and TransCanada will join forces at a later date to advance the pipeline project.

 

Shale supply, electricity demand explored at pipeline conference

Note: Federal Pipeline Coordinator Larry Persily attended and presented at the Pipeline Opportunities Conference in Houston on April 19. The discussion centered on increased supplies from shale gas production and rising demand from electricity producers. Here is his report from the conference.

“We don’t know what hydraulic fracturing regulation will look like over time,” said Ed Kelly, vice president for North American Natural Gas and Power with international consulting firm Wood Mackenzie. “We’re all making a lot of assumptions.”

“Environmental resistance and political attention continue to build,” adding uncertainty to shale gas production, he said. “Regulatory costs and permitting delays could slow development considerably.”

Despite that uncertainty, there likely will be enough shale gas in the market for the next 20 years to push completion of the Alaska natural gas pipeline past 2030, said Kelly, one of several speakers at the Pipeline & Gas Journal’s annual Pipeline Opportunities Conference in Houston April 19.

But that could easily change, he said, depending on regulation of fracking and increased demand for gas. “Close to 50 percent of total supply longer term will be affected by regulations on hydraulic fracturing,” he said.

“By 2013-2014, we will know much more about how shale wells perform longer term, and will have a much better idea of ultimate recoveries and production potential.”

Bruce Henning, vice president for regulatory and market analysis at consultants ICF International, also talked about shale gas production and the high-profile opposition to fracking. “There are real environmental concerns,” he said, though ICF, just as Wood Mackenzie, predicts shale production will continue to grow and dominate the U.S. market for years to come.

However, he also offered a warning: “Industry is only as good as its least diligent player.”

AGING PIPE INFRASTRUCTURE

Several speakers at the conference talked about the need for the oil and gas industry to prove to the public that it can operate pipelines safely and without leaks and spills. More than half of the pipes in the ground were buried more than 40 years ago, said Peter Lidiak, pipeline director at the American Petroleum Institute. Corrosion is the single largest cause of pipeline leaks, he said.

The industry will have to work with the Federal Energy Regulatory Commission to ensure it can recover its costs of pipeline repair and replacement, estimated in the tens of billions of dollars, said Daniel Martin, senior vice president for pipeline safety at El Paso Corp.

PRICES AT $6 TO $7 PER MCF

Much of the day’s discussion, however, centered on gas demand, supply and shale. An estimated 450 people attended the one-day conference.

The Interstate Natural Gas Association of American Foundation sees gas demand growing by 6 billion cubic feet a day by 2020 and an additional 5 bcf a day by 2035, with most of that demand growth coming from power plants. INGAA sees long-term gas prices settling in a range between $6 and $7 per thousand cubic feet, said Richard Hoffman, executive director of the trade group’s foundation.

The key, Hoffman said, will be to get a high enough price to cover costs and make a profit, but not so high as to stifle demand growth. Wood Mackenzie predicts gas will settle into a long-term price around $6.50 per thousand cubic feet (2010 dollars).

Coal-plant retirements and a resumption of economic growth could add 1.5 bcf a day to U.S. gas demand each year through 2020, according to Wood Mackenzie.

“It’s really looking pretty good for gas,” Kelly said. The “silver bullet” to creating more demand, he said, would be carbon regulation on the federal level. “That could have added 10 bcf a day to the demand side,” joking that independent gas producers could have helped themselves had they voted for Al Gore for president in 2000.

New federal legislation probably will not happen, especially after the 2010 Republican gains in Congress, but EPA carbon-emissions regulation is entirely possible.

The long-term prospects for natural gas are favorable, Kelly said, based on the anticipated retirement of a lot of older coal-fired power plants. “Carbon and environmental policy, coal retirements are the lever” on the demand side, according to the Wood Mackenzie presentation.

PETROCHEMICAL DEMAND UP

There also is good news for gas on the industrial side, Kelly said. After years of reduced demand and shuttered plants, “industrial demand redevelopment really is happening,” with even the petrochemical industrial seriously considering expansions to take advantage of affordable, plentiful domestic gas supplies.

Shale gas production is behind the talk of new petrochemical and industrial demand. But the unknowns of future shale production, its costs and environmental constraints maybe could help prospects for the Alaska gas line, Kelly said. Maybe.

Alaska gas does not compete with today’s shale plays, he said. Rather, Alaska’s competition in the 2020s and beyond will be shale plays not yet under production, plays possibly with higher costs. Alaska competes “with the next most costly shale,” he said.