Tuesday, December 14, 2010

Ethanol Idiocy Will Not Die

When Al Gore drops an environmental fad, it has truly reached its expiration date.

By Rich Lowry

In his wisdom, the Goracle recently acknowledged what almost all disinterested observers concluded long ago: Ethanol is a fraud. It has no environmental benefits, and harmful side effects. The subsidies that support its use are an object lesson in the incorrigibility of Washington's gross special-interest politics. It is the monster that ate America's corn crop.

"It is not good policy to have these massive subsidies for first-generation ethanol," the former vice president and Noble Peace Prize recipient said, referring to corn-based ethanol. He called the fuel "a mistake," and confessed one reason he fell so hard for it is that he "had a certain fondness for the farmers in the state of Iowa." These farmers vote in the First in the Nation caucuses and practically insist that their favored presidential candidates drink ethanol at breakfast and hail it as the nectar of the gods.

Gore's ethanol apostasy is a symptom of a left-right coalition that has arisen to expose the former wonder fuel. (The Gore of old insisted that "the more we can make this home-grown fuel a successful, widely used product, the better off our farmers and our environment will be.") But common sense, even cross-ideological, bipartisan common sense with all the evidence on its side, is no match for Congress' boundless appetite for expensive favors for powerful lobbies and constituent groups.

Tom Harkin and Chuck Grassley, the Democratic and Republican senators from Iowa, stand at the doors of Congress declaring: Ethanol now, ethanol forever. They have graced the Obama-McConnell tax bargain with an extension of a tax credit for ethanol that costs about $6 billion a year, and with an extension of a tariff on ethanol imports. Ethanol is so uneconomical that Congress supports it three different ways -- with a mandate for its use, a tax credit to subsidize it and a tariff to keep out competitors. Rarely are so many levers of government used to prop up one woeful product.

During the last decade, ethanol enjoyed a good run as a notional part of the solution to global warming. Then, environmentalists began to realize it might actually increase greenhouse emissions. Ethanol releases less carbon dioxide per gallon than gasoline. Once the emissions necessary to convert land to corn production and then grow and process it are taken into account, though, ethanol doesn't look so green anymore.

So much corn -- about 40 percent of the US crop -- is feeding into the maw of government-created demand for the fuel that it could be increasing world-wide food prices. In short, in exchange for not reducing greenhouse emissions, ethanol reduces the availability of food to the poor.

The multiple layers of subsidization have their own perversity. Since there's already a mandate to blend ethanol into gasoline, the tax credit is giving away money for something that would happen anyway. Environmental groups say this pads the bottom line of Big Oil. Harry de Gorter of the free-market Cato Institute has a more complicated take -- the subsidy decreases the cost and therefore the price of gasoline, effectively subsidizing its consumption. Your Congress at work.

But who cares about the facts? Once we have fired up a vast machine that from cornfield to distilleries produces 38 million gallons of ethanol a day, it will be nearly impossible to turn it off. Too many people will have a vested interest in continuing the scam, and its supporters -- like Harkin and Grassley now -- will always argue that any change is too disruptive. We'll still be mandating ethanol long after the internal-combustion engine is obsolete.

The ethanol experience should counsel against blithely creating new government-supported industries on the basis of dubious promises of cost-free environmental benefits. Judging by the tax bargain, festooned with all manner of other green subsidies and credits, it's a lesson ignored. In Washington, the boondoggles may lose their luster, but they never die.


Sunday, November 28, 2010

Still hope for gas pipeline

Study for DNR suggests future L48 gas prices will support gas from North Slope

Alan Bailey

Petroleum News

Amid current speculation about the future of the Alaska oil and gas industry, as oil production from the North Slope slows down and exploration drilling comes to a near standstill, it has become popular to add what some view as fading hopes for a future North Slope gas line to a general list of woes.

For, as the burgeoning development of plentiful supplies of so-called shale gas in the Lower 48 has caused a paradigm shift in the North American gas market, the price of Lower 48 gas has plummeted to levels below the projected transportation rates on a gas line from the Arctic, perhaps rendering the gas line uneconomic.

Objective analysis

In the interests of taking a rational look at the prospects for future Lower 48 gas prices, to replace worry-driven conjecture by objective analysis, the Alaska Department of Natural Resources commissioned consulting firm Black & Veatch to prepare a report on the future of North American gas prices in the context of the new shale gas revolution.
And the Black & Veatch analysts have found that, although there are major uncertainties around future North American gas markets, it is likely that gas prices in Alberta, Canada, will climb to somewhere between $5 and $7 per thousand cubic feet by 2020, with prices continuing to climb thereafter. And with a possible fee of $3.50 per thousand cubic feet for treating North Slope gas and carrying it by pipeline to Alberta, those gas prices could make a North Slope gas line viable, Antony Scott, a commercial analyst with Alaska’s Division of Oil and Gas, told Petroleum News Nov. 22.

DNR wanted an authoritative set of data, against which to benchmark the gas line project and had obtained funding from the Alaska Legislature for the Black & Veatch study, said Mark Myers, Alaska Gasline Inducement Act coordinator.

“This is a very robust study,” Myers said. “It’s like no other study we’ve seen out there in the literature.”

And Scott emphasized that the study tried to be unbiased in its views of future gas markets and, if anything, had underestimated the future cost and pricing of shale gas.

Technical breakthrough

Shale gas technology involves the extraction of natural gas from the impervious rocks where gas forms, rather than using the conventional approach of drilling into porous and permeable reservoir rocks that have trapped gas as it bubbles through subsurface rock strata. The use of high-tech horizontal drilling techniques that allow a well bore to pass for long distances through a shale gas horizon, coupled with the use of water and chemicals to fracture the rock, thus releasing the gas from the rock lattice, have been key enabling technologies in shale gas development.
The coupling of technical breakthroughs in shale gas production with the realization that vast areas of gas shale underlie various regions of the United States and Canada has triggered the shale gas revolution and caused a massive uptick in estimates of North American natural gas resources.

However, despite much hype about shale gas, with implications of vast gas supplies at rock-bottom prices, shale gas development still only has about a 10-year track record, with most of that record relating to one shale unit, the Barnett shale in Texas, Scott explained.

“It’s really important to recognize that outside of the Barnett we’re in extremely early days of the shale gas story,” Scott said.

But, after assessing various natural gas scenarios, the Black & Veatch analysts have concluded that shale gas production would figure large in any future North American natural gas supply situation.

“No matter what, there’s an awful lot of shale gas that is going to be relatively inexpensive to produce,” Scott said.

Price impact

The arrival of shale gas in the North American gas market, converting tightening production from conventional gas fields to a growing gas glut, caused gas prices that had climbed to levels approaching $8 per thousand cubic feet by 2008 to suddenly collapse, dropping to below $4 currently.
And the import of liquefied natural gas into the Lower 48, thought just a few years ago to be an inevitable growth industry as domestic supplies of natural gas decline, has now been pushed into the background.

“If you look at the price environment … it becomes hard to tell a story in which LNG finds an attractive home in North America,” Scott said.

Key drivers behind Black & Veatch’s view of future Lower 48 natural gas markets are the assumptions that the now-known abundant supplies of North American natural gas, coupled with an environmental preference for the use of gas rather than coal as a fuel, will push up the use of natural gas for electricity generation. On the other hand, while there are major uncertainties regarding future gas demand levels, there are also major uncertainties in estimates of the future costs of developing new shale gas resources.

For example, the supply of water for shale fracturing and the subsequent treatment and disposal of water produced from gas wells has represented a fairly modest cost element in the development of the Barnett shale, but will likely become a major cost factor in the development of shale gas in other basins.

Inconsistent data

But inconsistencies in the way in which finding and development costs for shale gas are reported make it difficult to assess whether those costs are compatible with current gas price levels, and Black & Veatch thinks that current prices may be artificially low.
“Current market prices for natural gas in North America may not provide adequate return for full development of shale resources in North America,” the Black & Veatch report says. “Significant levels of current shale production appear to be driven by requirements to drill to maintain acreage positions.”

Published shale gas finding and development costs in the Lower 48 range from $2.06 to $2.35 per thousand cubic feet, but these numbers do not appear to include factors such as land lease costs and water costs. Estimated costs of $3.25 to $4.25 per thousand cubic feet in western Canadian basins are likely nearer the full cost, although there are differences between cost reporting rules in Canada and the United States, Black & Veatch says.

And an examination of the production history of the Barnett shale provides some revealing insights into possible future shale-gas cost trends.

Essentially, Barnett shale production has seen a series of significant technical breakthroughs, each of which has caused a sudden jump in gas production. But the rate of increase in production has dropped back sharply after each technology-induced spike. And, contrary to popular belief, the cost of finding and developing additional volumes of Barnett shale gas appears to have increased rather than decreased over time.

Rising cost

The explanation for this conundrum seems to lie in the production characteristics of shale gas resources. In essence, a shale gas well achieves high initial production rates as the fractured shale rapidly releases its gas content. But, with the rock being relatively impermeable, that initial production rate drops off quite rapidly, requiring increasing effort to stimulate existing wells and the drilling of new well bores to sustain overall production levels.
The result is a production cost profile that curves upwards as more and more of the gas resource is accessed, until a law of diminishing returns places an upper cap on the total volume of gas that can be viably extracted from a particular shale gas resource, the Black & Veatch analysts concluded.

Recognizing the importance of individually considering the unique characteristics of each shale gas basin, the Black & Veatch analysts applied the upward curving cost model to each of the various U.S. and western Canada basins, to assess future gas production costs in different basin scenarios. Estimated water costs factored high in the distinctions between the scenarios — potential situations ranged from unlimited water access and the disposal of untreated water down wells, as for a Barnett shale development, to limits on water supplies and the need for the treatment of produced water, as would be required for developments in the Marcellus shale in Pennsylvania.

Additional costs, all subject to significant uncertainty and regional variation, include land access and government taxes.

Rising demand

But future demand for natural gas in North America should support the anticipated gradual rise in shale gas costs.
Black & Veatch has its own Lower 48 gas demand forecast that assumes gas demand for electricity generation will rise at an annual rate of 3.2 percent, with greenhouse gas regulation tending to drive the replacement of coal-fired generating capacity by gas-fired power plants. In 2010 the Energy Information Administration, apparently barred from considering potential changes in government energy policies, came up with a lower growth rate of 0.5 percent, on the assumption that there would be no future restrictions on greenhouse gas emissions.

And although the Black & Veatch projection of total demand from all uses of gas through to 2035 also exceeds the equivalent EIA projection, the Black & Veatch projection is “within the fairway” of several independent gas demand forecasts, Scott said.

“Power generation demand is going to be a really big story,” he said. “It’s going to matter a lot.”

Then, when it comes to the interplay between gas costs, gas demand and gas prices, the actual level of gas demand and the actual finding and development costs would appear to be the likely dominant future drivers of gas prices. And Black & Veatch assembled low, medium and high gas price scenarios, using a standard North American gas model to project, for each scenario, likely annual gas prices at different market hubs, together with likely annual production volumes from each shale gas basin, through to 2040.

Price scenarios

The low-price scenario assumes the relatively low EIA projection of future gas demand, together with low water costs; low finding and development cost escalation, along the lines of conventional gas fields; and modest tax rates. The medium-price scenario uses Black & Veatch’s shale-gas cost escalation model, together with Black & Veatch’s projection of future gas demand. The high-price scenario adds in increased environmental restrictions over access to shale gas resources, somewhat higher tax rates and relatively high water costs.
The low-price and high-price scenarios projected into 2020 result in the $5 to $7 per thousand cubic feet price range that may come into play in Canada at around the time when completion of a North Slope pipeline could be in the offing.

“Except in very extreme events we believe the Alaska (gas line) project — given what we know about the tariff structure today, the cost of producing gas at Prudhoe and Point Thomson — it looks like it should work,” Myers said.


Sunday, November 14, 2010

Cap-and-trade will not pass this Congress

Ben Nelson: Cap-and-trade will not pass this Congress
By Michael O'Brien - 10/30/09 10:35 AM ET

A cap-and-trade bill to address climate change cannot pass the Congress this session, Sen. Ben Nelson (D-Neb.) claimed Friday.

Nelson, a centrist Democrat whose vote is key to leaders wielding its 60-vote majority in the Senate, said he and his constituents had not been sold on the cap-and-trade system proposed in House and Senate bills to address global warming.

"No," Nelson simply responded when asked if those cap-and-trade bills can pass through this Congress during an interview on CNBC.

"I haven't been able to sell that argument to my farmers, and I don't think they're going to buy it from anybody else," Nelson said. "I think at the end of the day, the people who turn the switch on at home will be disadvantaged."

The pessimistic assessment makes Nelson a thorn in the side of his party's leaders on climate change legislation, one of their top priorities, as they assiduously court his vote on another key proposal, healthcare reform.

On that issue, Nelson was reluctant to fully stand behind the Senate health bill as has currently been proposed, but said he is working to find a way to support the legislation.

"I don't know that we should conclude that some form of healthcare reform won't pass. I believe that some form will pass," he said. "I'm looking to find a way to vote for healthcare reform because we need it."


Saturday, October 2, 2010

Alaska Candidates: Oil is declining, so what do we do?

Tim Bradner
adn.com Economy

When the debate topic turns to state economic policy in the governor's race, the first thing out of the chute is usually petroleum policy and oil taxes, and what we can do to stimulate this industry, which many fear is declining.
Oil is vital to Alaska. Royalties and oil taxes pay for 90 percent of the state budget, the Department of Revenue says. Overall, the industry supports about a third of Alaska's economy directly and indirectly, according to University of Alaska studies.
However, the trends in this vital industry are headed the wrong way. Production is declining, employment is down and new exploration may hit a record low this year.
Don't think a gas pipeline will bail us out, either. State revenues generated by gas will be very modest compared with oil and a pipeline is 10 years away, if then.
What do our governor candidates say about this? Sean Parnell, the incumbent, talks about expanding targeted tax credits for field work. His major opponent, Ethan Berkowitz, talks about negotiation of special fiscal terms for new fields as a way of inducing development.
Both ideas have merit and both are done in Alaska today on a more modest scale, and with success. But neither packs the punch to really turn this industry around. The big problem, which no major party candidate will talk about, is that Alaska's oil taxes are just too high, period.
Retired state economist Roger Marks has authored a new paper showing that Alaska's marginal oil tax rate, in essence the tax rate on profits from new investment, can exceed 80 percent. Alaska now has the dubious distinction of having one of the heaviest tax rates among major oil producing regions of the world, Marks says.
With production, drilling and jobs declining, is this where we want to be? I want to hear some discussion from candidates that we may have overshot in 2007 when we did major surgery on the state oil tax law and adopted a very aggressive tax formula. Do our politicians have the stomach to admit they possibly made a mistake? The proof of this is in the declining production and drilling. Only Ralph Samuels, a candidate in the Republican governor's primary, had the guts to talk about this.
Some legislators raised this in Juneau earlier this year, State Rep. Craig Johnson among them. Most lawmakers weren't interested in taking the issue on, however.
It's not that political leaders are clueless. In fact, our state has adopted some very innovative incentives with very generous investment tax credits for exploration and special royalty terms for development that have brought new companies here, most recently Apache Oil.
These help, particularly for small independent companies, but the problem is that the high overall tax rate really dampens the economics of major exploration projects, the very high-cost, high-risk ventures aimed at making really big discoveries. These are the kind that can really turn things around.
When exploration managers model their risk/reward balance with a new exploration project, for example in a high-cost, remote area, they seek a balance between the small chance they could make a very profitable find and the high probability of failure. The high state tax on a profitable discovery skews this balance, in that if the company wins its gamble the state takes almost all the gain, as Roger Marks shows. The state's current drilling incentives help ease the risk a bit but not enough to overcome the disadvantage of the high tax rate.
We need more discussion of this. Gov. Parnell says he likes targeted investment tax credits because no credit occurs unless the investment is made. He worries that there is no guarantee investment dollars will follow if a general tax reduction is made. Parnell's challenger, Berkowitz, basically follows a similar safe strategy: Unless a company agrees to invest in a negotiated deal, no fiscal agreement occurs.
Again, nothing is wrong with these tried-and-true strategies but they're too cautious. We need something more daring to turn things around. The Legislature had real guts last session in offering up a radical incentive for new drilling in Cook Inlet, a state offer to pay most of the costs of the first three test wells drilled with a jack-up rig. As a result we now have new companies investing in the Inlet. We need something similar for the North Slope, our largest oil basis, and we should engage the discussion now.

Tuesday, September 28, 2010

Conoco to reassess Alaska gas pipeline

According to London's Financial Times, ConocoPhillips' chief executive Jim Mulva said recently that the company would reassess the economics of the Denali project, a $30 billion gas pipeline from Alaska to Alberta it is considering building along with partner BP. The reconsideration is coming because a glut of natural gas in North America, being driven by unconventional shale gas plays, is keeping forecast commodity prices low. The current price is so low that Conoco has even shut in some of its North American gas wells (as have other companies). Mulva candidly explained the decision: "We’d rather keep it in the ground for when it will have a greater financial impact.” The report doesn't mention whether or not that statement applies to Alaska's natural gas as well as the shut-in wells, but read much more, here. Alaska Beat thinks it's worth noting that the industry pretty much agrees that gas prices will likely stay low in the short term, but there has been quite a bit of uncertainty over what they would do in the long term. At the very least, Mulva's comments and Conoco's plans to reevaluate Denali's particulars indicate that doubts over the long-term price of gas are coming into greater focus and are significant enough to attend to.

Read More

Sunday, September 12, 2010

No timeline for AK

Salazar says he needs confidence in safety before allowing OCS drilling

By Alan Bailey
Petroleum News
The Department of the Interior will not decide whether to allow exploration drilling for oil and gas in the Alaska Arctic outer continental shelf until it has completed a review of safety issues relating to offshore drilling activities, Interior Secretary Ken Salazar told a press conference in Anchorage on Sept. 3.
The briefing came at the end of a 48-hour visit to Alaska by Salazar and Deputy Interior Secretary David Hayes to meet with Alaska communities, energy industry officials and others, and to view areas of the state impacted or potentially impacted by oil and gas development.

Prohibited Shell drilling
Following the Deepwater Horizon disaster in the Gulf of Mexico, Interior prohibited Shell from proceeding with a planned 2010 drilling program in the Beaufort and Chukchi seas — the company now hopes to carry out that program in the summer of 2011. But, although Interior is aware that Shell needs to know in late 2010 or early 2011 whether it will be allowed to drill in 2011 to give the company sufficient time to mobilize its drilling fleet, Interior cannot make specific time commitments on a decision whether to authorize the drilling, Salazar said.

“I put those exploration plans on hold this year until we learn more from the experience that we’ve had dealing with the Macondo well in the Gulf of Mexico,” Salazar said. “Until we are confident that drilling can be conducted (safely) in the Chukchi and Beaufort seas we will not be allowing that program to go forward.”
Much will depend on the outcome of a report on offshore drilling that Michael Bromwich, the new director of the Bureau of Ocean Energy Management, Regulation and Enforcement, is preparing, and on the results of a Marine Board investigation of the Deepwater Horizon disaster, as well as on a pending Deepwater Horizon report from the National Academy of Engineering, Salazar said. Bromwich has been traveling around the United States gathering input for his report, which he anticipates delivering to Salazar by Oct. 31 at the latest.
“It’s a dynamic situation and we will make our decisions based on information when it comes forward,” Salazar said.

Three questions
Salazar said that the Deepwater Horizon disaster had raised three central questions for the United States when it comes to offshore oil drilling: workplace safety, the ability to contain oil from an out-of-control well and the feasibility of conducting an adequate response to an oil spill.
With regard to the issue of workplace safety, Interior is issuing new safety-related regulations that address questions such as blowout preventer requirements; well cementing and casing standards; and several other issues.
“There’s a bucket of issues around drilling safety and worker safety that we’re looking at,” Salazar said.
And when it comes to containing oil from a subsea well blowout, multiple failed efforts to capture oil from the Macondo well, including a failed containment dome, a failed “top kill” and a failed “junk kill,” illustrated the difficulty of dealing with a subsea blowout, even for one of the largest companies in the world, Salazar said.
“It is something which we will address before we allow drilling to continue,” Salazar said, while also commenting that Shell and the oil industry are trying to deal with this issue.
In addition, BP’s Gulf of Mexico oil spill response plans, despite being specified for a larger oil flow than that from the Macondo well, had proved inadequate, resulting in 1,200 miles of Gulf of Mexico coastline being impacted by oil and in damage to natural resources, Salazar said.
“And so one of the major questions that we are facing is what will we require of companies with respect to having an adequate spill response plan, and that question is very applicable to the Arctic Circle area,” Salazar said. “What happens if you have an oil spill in the Chukchi and Beaufort? How is it going to be contained?”

Moratorium applies in Alaska
The question of whether drilling on Alaska’s Arctic outer continental shelf is subject to a six-month drilling moratorium imposed by the U.S. Department of the Interior following the Deepwater Horizon disaster has been a subject of confusion and, at times, acrimonious debate since imposition of the OCS moratorium in May.
“The moratorium does in fact apply to Alaska,” Salazar said, contradicting a Nov. 26 statement by Bromwich that there “is not a moratorium per se in Alaska.”
Salazar said that he is applying the moratorium in Alaska because the three central questions over OCS drilling apply as much in the context of Arctic offshore drilling as they do in the Gulf of Mexico.
The moratorium imposed in May applied only to water depths greater than 500 feet and did not make any mention of the Arctic OCS, where the waters in areas of oil and gas interest are substantially shallower than that 500-foot limit. But Salazar said that he had notified Shell that Interior would not issue drilling permits for Shell’s 2010 program and that he viewed this de facto moratorium as, in effect, an extension of the deepwater moratorium.

Applied differently“The moratorium on the Arctic essentially is imposed in a different way. … I withheld the (drilling) authorization because of the fact that that some of the same questions that I am looking at in the Gulf of Mexico are central to the question of whether we allow an exploration well,” Salazar said. “If you look at the Chukchi, nothing or very little is known about the reservoir pressures that would be encountered. And if you look at the Chukchi you know that it will be very difficult to mount the kind of oil spill response that has been mounted in the Gulf of Mexico.”
On July 12 Interior issued a new drilling moratorium, replacing the May moratorium and banning all OCS drilling done from a floating drilling facility using a subsea blowout preventer. Again, the moratorium did not mention the Arctic and Bromwich, in his Aug. 26 statement, emphasized that the moratorium applied to specific equipment usage, rather than water depths or geographic locations.
But Shell’s planned Arctic drilling, using a drilling vessel and blowout preventers in well cellars in the seafloor, would presumably have been banned under the terms of the July 12 moratorium.

Court injunction
However, a court injunction actually applies to the drilling moratorium as a consequence of an appeal by several Gulf of Mexico oil service companies against the original May drilling ban. In June a judge in the Louisiana District Court ordered the injunction, saying that Interior’s application of a blanket moratorium on all deepwater drilling on the OCS would likely be viewed by the court as “arbitrary and capricious.” And on Sept. 1 the court threw out a claim by Interior that the July 12 moratorium had rendered moot the appeal case.
The case has now gone back to the Court of Appeals for the 5th Circuit, where Interior had appealed the injunction.
But, as far as the Alaska is concerned, the injunction really is in practice moot, since at this late stage in the annual open water season there is no possibility of anyone drilling for oil in the U.S. Arctic OCS this year.
The real question is whether an Arctic drilling moratorium, de facto or otherwise, will apply in the summer of 2011.
Wednesday, In the lead testimony, it was said, "Secretary Salazar has created an imperial throne of his administrative position. He has not acted in response to the law but – in Plato’s words – has attempted to make the law subject to his own authority. Your clear-headed recommendation could help set the Interior Department back on a steady course consistent with the rule of law, respectful of due process and serving the interest of the American public.

I am advising you tonight –via several bullet comments—under your second mission of considering ‘economic consequences’ of the Department’s decisions.
• The Secretary’s moratorium applied to deepwater development. Yet, without public notice or notice to affected parties he told the Senate Appropriations Committee on June 23 that the Moratorium did apply to Alaska. Just like that. No due process. Done on his own authority. He repeated his verbal extension of the moratoria last week while he was in Anchorage. He said he had other reasons than ‘deepwater concerns’ for applying the moratorium on his own authority to Alaska. He said he had applied this moratorium to Alaska on his own authority by causing various approvals to be withheld.
• The Secretary’s blunt use of power under the authority of his own word without notice or due process has significantly harmed Lessees, the State of Alaska and the people of the state. Chukchi and Beaufort Sea exploration was on course for his approval early in the year, following several years of preparation by exploration companies and the expenditure of billions of dollars. The Secretary’s actions have cost companies hundreds of millions or billions of dollars in delays and lost opportunities. His actions have endangered the economic survival of the State, dependent as it is on declining throughput of the Trans Alaska Pipeline--waiting for new volumes of OCS or ANWR or National Petroleum Reserve-Alaska throughput. His actions have erased job opportunities this very summer for hundreds of Alaskan citizens."

Sunday, August 8, 2010

BP Doug Suttles Tours the Oil Spill Site

Doug Suttles, Chief Operating Officer, BP Exploration and Production, returns to the site of the oil spill to see the progress that has been made in the fight against the oil spill. "The things people have done here are mind-boggling." To learn more about BP's response in the Gulf of Mexico, visit http://bp.com/gulfofmexico

Static Kill Overview

In this video, BP Sr VP Kent Wells explains key differences between the Top Kill, which was unsuccessful, and the Static Kill procedure proposed to kill the MC252. Wells covers both the Static Kill and Bottom Kill procedures being planned for killing and cementing the MC252.

Tuesday, August 3, 2010

Static Kill Demonstration

A demonstration shows what engineers will attempt on the temporarily-capped BP well.

Static Kill Injectivity Testing Commences on MC252 Well

Release date: 03 August 2010
HOUSTON - BP started injectivity testing today at 19:05 (UK) and 13:05 (CDT) in advance of static kill operations. Based on the results of the injectivity test, pumping of drilling mud for the static kill could commence later today, following which a decision on the best way to cement the well will be determined. All operations are being carried out with the guidance and approval of the National Incident Commander. The aim of these procedures is to assist with the strategy to kill and isolate the well, and will complement the upcoming relief well operation.
The relief well remains the ultimate solution to kill and permanently cement the well. The first relief well, which started May 2, has set its final 9 7/8-inch casing. Operations on the relief wells are suspended during static kill operations. Depending upon weather conditions, mid-August is the current estimate of the most likely date by which the first relief well will intercept the Macondo well annulus, and kill and cement operations commenced.

Read More

Thursday, July 15, 2010

BP announces oil leak has stopped

BP announces oil leak has stopped in Gulf of Mexico for first time in 3 months (see live video)
Cindy Adams - US Headlines Examiner

BP oil spill update: Testing on new cap begins, spill should be contained by July 19

BP announced Thursday that oil has stopped leaking into the Gulf of Mexico for the first time since its rig exploded on April 20.

Undersea robots worked through the night on a leak that was found after BP began testing its new well cap Wednesday afternoon. The test was conducted by turning off pipes that send some of the oil to surface vessels so the full force of the oil was centered on the cap. After two of the three valves on the cap had been closed, it was determined that one was still leaking.

BP PLC Vice President, Kent Wells, said the new leak was repaired by replacing the assembly, or choke line, on the suspect pipe.

ABC News reports that the cap remains a temporary fix and the leak will only be permanently quelled after two relief wells that are currently being drilled can reach the leak and permanently plug it with cement and heavy drilling mud. BP has stated this will likely occur mid-August.

To see live video of the well and the repairs being done, click here.

Now that the leaky pipe has been replaced, BP will have to begin retesting by letting additional oil leak out of the cap temporarily and once again turning off a pipe that is sending oil to a surface ship, in order to determine whether the new cap can withstand the full force of the erupting oil.
Read More

Friday, July 9, 2010

New cap, ships could contain Gulf leak by Monday

Associated Press Writer

NEW ORLEANS (AP) -- The federal official leading the Gulf oil spill cleanup said Friday a new containment cap and an additional ship collecting oil could effectively contain the spill in the next three days.

The work to replace a leaky containment cap on the well head with a tighter one will begin Saturday, National Incident Commander Thad Allen said. At the same time, a ship connecting to a different part of the leak is expected to come online Sunday.

Oil will flow unimpeded into the Gulf during the cap switch for at least part of the weekend.

If all goes according to plan, the combination of the cap and the new vessel could collect all the leaking oil by Monday, stopping it from escaping into the Gulf of Mexico for the first time since April 20.

"I use the word 'contained,'" Allen said. "'Stop' is when we put the plug in down below."

Work continues on what officials hope will be the final plugging of the well - drilling on two relief wells through which mud and cement will be pumped to stop the leak once and for all. That's expected to happen sometime in mid-August.

The new containment cap is expected to form a better seal over the well head, to allow more of the oil to be collected and sent up to ships on the surface for collection or burning.

"Technically it's pretty achievable," Allen said. He said if the new cap can't be placed on the well, the old cap will be put back and there are multiple backup caps available in case any one cap fails.

The new, tighter cap should be in place early Monday. Allen said the ship Helix Producer, which is to be hooked to a different part of the leaking well - lower than the new cap - will start collecting oil Sunday and be fully operational Tuesday. He has previously said that the full system should be able to collect 60,000 to 80,000 barrels a day.

The schedule for both efforts has been accelerated to take advantage of what could be a rare window of good weather. The hookup of the Helix Producer was delayed this week by poor weather. But an unexpected break in weather patterns creating choppy seas provides a window of a week or so with waves of only 1 or 2 feet.

"Everybody agrees we got the weather to do what we need," he said.

Containing the leak is not the same as stopping the environmental catastrophe that began April 20 when the Deepwater Horizon oil rig exploded, killing 11 workers.

The relief wells remain the best option for a final plug to the leak, at which point cleanup and restoration become the main focus.

Though officials said the first relief well could be finished by the end of July, weeks ahead of schedule, they are quick to point out that such an optimistic timetable would require ideal conditions every step of the way.

That is something that has rarely happened since the leak began.

Thursday, June 24, 2010

Costner's Centrifuge

Kevin Costner Ocean Therapy Press Conference

Ocean Therapy Solutions and BP news conference and update on the ongoing efforts to deploy Ocean Therapy's oil separating centrifuge devices in the Gulf of Mexico to clean up the Horizon oil spill.

BP has created this YouTube channel to engage the public in an informative conversation and dialogue about our efforts associated with the oil spill in the Gulf of Mexico. We want our page to be an appropriate forum for everyone. For more information on our Commenting Policy, please see the Latest News section on our main page: http://youtube.com/bp.


For the latest updates and to join the conversation on the Gulf of Mexico oil spill, please visit our Facebook Page: www.facebook.com/BPAmerica.

For more information, please visit: www.bp.com.

Saturday, June 5, 2010

BP: A significant step forward

Adm. Thad Allen calls it "a significant step forward"; BP has successfully sliced off the top of a damaged riser.

Thursday, May 27, 2010

'Top kill' method 'slows BP oil leak' in Gulf of Mexico

Oil has been gushing from the well for the past five weeks BP has slowed the flow of oil and gas from a ruptured well into the Gulf of Mexico, a US official told local media.

The company's "top kill" effort has "stabilised the wellhead", Coast Guard commander Admiral Thad Allen said.

But he cautioned it was too early to declare success. This is the first step in BP's plan to seal the well for good.

'Low pressure'
Footage from BP's underwater camera
Adm Allen told US media the "top kill" procedure, which began on Wednesday, has pumped enough drilling fluid to block some of the oil and gas escaping from the well.

Adm Allen told National Public Radio that BP engineers had "been able to force mud down and not allow any hydrocarbons to come up."

It was the first positive official assessment of BP's latest attempt to plug the well, after previous efforts failed.

BP shares were up more than 5% in London trading following the announcement.

BP has not yet commented in detail on the situation, saying merely that its "subsea efforts [were] advancing on several fronts".

Live Feed Ocean Floor from BP

BP: Top Kill Operation - Animated - May 26, 2010

Animation showing the Top Kill process designed to stop the flow of oil from the well. Heavy "kill mud" is pumped down a drill pipe, then through hoses that go through the manifold on the seafloor. The mud then moves through another set of hoses attached to the Deepwater Horizon blow-out preventer's choke and kill lines, then into the well.
Animation showing the Top Kill process designed to stop the flow of oil from the well. Heavy "kill mud" is pumped down a drill pipe, then through hoses that go through the manifold on the seafloor. The mud then moves through another set of hoses attached to the Deepwater Horizon blow-out preventer's choke and kill lines, then into the well.
Click here to see animation on YouTube.

Deepwater Horizon Response

Sunday, May 23, 2010

Kevin Costner oil spill cleanup idea interests BP

By Mark Guarino

Film star Kevin Costner is joining the ranks of scientists, engineers, and lawmakers in an international effort to figure out how to contain and clean up oil streaming into the Gulf of Mexico at the rate of 210,000 gallons a day.
Mr. Costner appeared in New Orleans last week to demonstrate a $24 million oil extraction device he is pitching to BP and Coast Guard officials. Costner says the device will clean oil from the water at a rate of 97 percent. BP Chief Operating Officer Doug Suttles said Wednesday that his team will test the device next week.
Costner's involvement in helping solve oil spill crises is not new. The 1989 Exxon Valdez oil spill disaster in Alaska motivated the actor to help fund a consortium of scientists to develop technology that mitigates oil-infected water before it hits the coast. The technology is ready to combat the BP spill, he told reporters last week.
"It's not anymore about talk," Costner told WWL-TV in New Orleans. "It's about doing the walk, and that phrase was probably invented down here."
Costner's company, Ocean Therapy Solutions, provides multiple machines designed to address spills of different sizes. The largest can clean as many as 200 gallons per minute, Costner said. The company reports it has 20 such machines ready to be employed.
"The machines are basically sophisticated centrifuge devices that can handle a huge volume of water and separate [the oil] at unprecedented rates," Ocean Therapy Solutions CEO John Houghtaling said last week.

Costner said the machines work by drawing in the infested water where it then breaks it down, allowing the oil to discharge through a separate pipe. His audience, a gathering of local parish presidents, appeared eager to get the device to the Gulf.
"To me, this is a major tool for a tool box that should be tested," said Craig Taffaro, St. Bernard Parish president.
Besides saying that Costner's device will be tested next week, BP's Suttles said his company and the Coast Guard have been collecting ideas from the public since Day One of the crisis. The command center receives 100 ideas a day, Suttles said.
Costner said his decision to fund the technology was a result of needing to use the wealth he was "lucky" to accumulate instead of "piling it" for no real purpose.
"We all make decisions about what we want to be a part of. I'm just one person focusing on a specific problem and throwing a little resources to a lot of talent and manpower ... to come up with what is a [solution]," he said.

Read More

Wednesday, May 19, 2010

Gulf Spill: The Blame

May 19, 2010: While politicians and environmental groups step up to posture in the face of the Deep Water Horizon disaster, the company who is taking the brunt of the criticism has not been afforded the right to a fair hearing of facts in the press.

Since the well blew in the Gulf of Mexico on April 20th, several things have happened that warrant a clear and concise explanation.

In what stands to be one of the biggest oil spills in the history of the United States, the cause of the spill now appears to be an unauthorized modification of the blow out prevention (BOP) valve.

The Blame

BP's Deep Water Horizon oil rig exploded and sank off the cost of Louisiana last month. Eleven rig workers are missing, which was operated by Swiss-based Transocean Ltd, the largest independent driller in the world.

Meanwhile, the BOP failed to stop the flow of oil as it should have after the explosion and allowed oil to pour into the Gulf of Mexico. Fingers are being pointed at BP, even though Transocean was the sub-contractor.

Eventually, BP will be exonerated. But first we will all have to play a game of cover our asses.

From the subcontractor who reportedly modified the BOP without the knowledge or permission of BP, to the government regulators who okayed the modified BOP, to the Obama administration who wants to look tough on BP even thought they had no culpability, everyone is running for cover.

After the BOP was installed, the modifications made after the fact are assumed to have prevented the part from operating properly.

These modifications were discovered by remote operated vehicles whose pictures transmitted to engineers trying to find out why the BOP didn't activate, showed the part had been altered.

Government Response

Meanwhile, the Federal Government responded by splitting up the regulating and revenue collecting functions of the Minerals Management Agency, to as President Obama described, break up the cozy relationship between regulators and the oil industry.

However, the action to split up the functions draws attention to just who was responsible for permitting the BOP that failed to work. Could it have been that an MMS inspector didn't properly follow through with the BOP test monitoring?

BP's Safety Record

Much has been written since the well blew four weeks ago about BP's safety record. But that says nothing about the company today and the focus on safety they have made the last two years.

While many press accounts recall the explosion at BP's Texas City refinery in 2005, and the spill at Prudhoe Bay a year later, those incidents occurred before BP's current CEO Tony Hayward assumed control.

Since the spill, Hayward has been a visible point man for BP. He wasted no time in appearing on major network news shows to describe the situation on the ground. He has mobilized 2,500 workers to the site, including several from Anchorage, and he has accepted full responsibility for the disaster.

This shouldn't be surprising. After all it was Hayward, who in 2005 won accolades from BP employees for speaking out against the way the company was handling the Texas City disaster, criticizing his bosses for "a leadership style that is too directive and doesn't listen sufficiently well."

The Politics

The politics are bare knuckle.

The spill has given fodder to environmentalist to once again raise a ruckus about offshore oil & gas drilling. Congressmen, one right after another, attempting to look tough, are demanding answers from BP they already have received. And the White House continues to posture on the real issue which is; energy supplies come at a risk.

But the fact is the Gulf of Mexico accounts for almost a third of America's oil production and has been where most of the new finds have been for oil companies.

Furthermore, before the April 20th disaster, there hadn't been a leak from an offshore well in 40 years.

As the Economist recently opined, "If Americans do not want to hand more money and clout to the likes of Iran, Russia and Venezuela, the argument runs, they should not curb offshore drilling."

The impacts have reached Alaska. The spill has set off another round of opposition to offshore drilling in Alaska and age old worries about a spill in the Arctic conditions. But these concerns are unfounded.

Currently, as a result of the 1989 Exxon Valdez spill, Alaska has the toughest regulations in the world. Companies like Shell Oil who are exploring off Alaska's shores are required to abide by and held to a much higher standard of prevention and response then anywhere on the globe.

The more and more you hear of the Deep Water Horizon tragedy the more you'll learn that it was a careless contractor who set the stage for the disaster. And as I said, at the end of the day BP will be exonerated in my opinion.

Let's hope for the future of our nation's energy security we don't use one bad incident in 40 years as an excuse to stop offshore drilling.

And let's hope we get bp: beyond posturing.

Andrew Halcro's blog

Friday, May 14, 2010

Obama scolds BP

President Obama vented his frustration Friday during a statement to the press he issued from the White House Rose Garden.

Flanked by cabinet members and other administration officials overseeing the federal response to the blow-out, he lit into industry representatives who appeared at congressional hearings on the spill earlier this week.

"I did not appreciate what I consider to be a ridiculous spectacle during congressional hearings into this matter," he said. "You had executives of BP and Transocean and Halliburton falling over each other to point the finger of blame at somebody else."

Nor did federal regulators escape the tongue-lashing. The president criticized what he termed "a cozy relationship" between oil companies and federal regulators in which "permits were too often issued based on little more than assurances of safety from oil companies" and oil companies exploited loopholes that "allowed some oil companies to bypass some critical environmental reviews," Obama said.

Part of the challenge – and the frustration – in coping with the blow-out lies in determining just how much oil the submarine gusher is releasing.

Official estimates from the federal government and BP, which owns the oil lease the Deepwater Horizon was working, place the leak rate at some 5,000 barrels (210,000 gallons) of oil a day. That alone is has been enough to trigger a regional emergency response.

But independent experts say the leak rate is likely to be much larger.

A week ago, Florida State University marine scientist Ian McDonald put the leak rate at around 25,000 barrels a day.

And in a report Friday morning, National Public Radio cited estimates from three independent scientists who say at least 50,000 barrels of oil a day are flowing into the Gulf waters. That would imply that the Deepwater Horizon disaster could be releasing at least the equivalent of one Exxon Valdez spill every five days.

These estimates have wide margins of error, cautions Timothy Crone, a scientist at Columbia University's Lamont-Doherty Earth Observatory in Palisades, N.Y.

In an email exchange, Dr. Crone, one of the three scientists NPR contacted, noted that his approach honed on estimating the material spewing from deep-sea hydrothermal vents.

He says that videos of the blow-out taken by robotic cameras at the well head lack the detail needed for more precise estimates of the flow. Moreover, the material emerging from the well head is a mix of methane, mud, and oil.

Taking all that into account, he puts the flow rate at roughly 50,000 barrels of oil a day.

"My numbers should be viewed with caution," he warns, but adds, "the flows are almost certainly higher than 5,000 barrels a day."

Read More

Hayward applauds President's statement on oil spill
Release Date: 02 May 2010
“The US government leadership here has been excellent since day one. I agree with the President that the top priority right now is to stop the leak and mitigate the damage. I reiterated my commitment to the White House today that BP will do anything and everything we can to stop the leak, attack the spill off shore, and protect the shorelines of the Gulf Coast. We appreciate the tireless efforts of the many federal, state and local responders and the volunteers, men and women who have worked tirelessly since the date of the accident to mitigate the damage. Our teams are working hand in hand and we look forward to hearing more recommendations for action from the President’s visit today.”

-Tony Hayward, from Houma, Louisiana

Hayward Comments on President Obama's Statement
Release Date: 14 May 2010
Tony Hayward, BP Group Chief Executive, today said:

“We absolutely understand and share President Obama’s sense of urgency over the length of time this complex task is taking. We want to thank the President and his administration for their ongoing engagement in this effort.

“BP - working closely with scientists and engineers from across the whole oil industry, from government agencies and departments, and with local officials along the Gulf Coast - is focused on doing everything in our power to stop the flow of oil, remove it from the surface, and protect the shoreline. We are working with state and community leaders to mitigate the impact on the lives and livelihoods of those who have been affected.

“And while we continue in these efforts, we are participating fully in investigations that will provide valuable lessons about how to prevent future incidents of this nature.”

Wednesday, May 12, 2010

Riser Insertion Tube

Graphic depicting the Riser Insertion Tube method to contain oil leaking from the riser of the Deepwater Horizon Well. This technique is one of several that technicians and engineers have developed to slow or stop oil from leaking into the Gulf of Mexico.

For information about the response effort, visit www.deepwaterhorizonresponse.com.

BP says Gulf blow out preventer had been modified

WASHINGTON, May 11 (Reuters) - The blow-out preventer that was supposed to help protect against the oil spill disaster in the Gulf of Mexico had been modified, BP America Inc (BP.L: Quote, Profile, Research) President Lamar McKay told a senate panel on Tuesday.
"I have reason to believe the BOP had been modified," McKay told the Senate Committee on Energy and Natural Resource, which held its first hearing into the causes of the spill that killed 11 workers and caused a leak that is still releasing thousands of barrels of oil per day.

Steven Newman, the president and chief executive of Transocean Ltd (RIGN.S: Quote, Profile, Research) said the blowout preventer had been modified in 2005 at the request of BP.
Read More

WASHINGTON – Rep. Henry Waxman says that his committee's investigation into the Gulf oil spill reveals that a key safety device, the blowout preventer, had a leak in a crucial hydraulic system.

The California Democrat said in a hearing Wednesday that the investigation also discovered that the well had failed a negative pressure test just hours before the April 20 explosion.

He cited BP documents received by the Energy and Commerce Committee that showed there was a breach in the well integrity that allowed methane gas and possibly other hydrocarbons to enter the well.

Friday, May 7, 2010

Wednesday, May 5, 2010

BP stops one of three Deepwater Horizon oil leaks

"We made good progress yesterday, including the cap on the drill pipe," BP spokesman John Curry wrote in an email, referring to shutting off one of the leaks.

Doug Suttles, BP chief operating officer, had said on Tuesday that although the undersea repair work on the riser pipe was expected to plug one of the three leaks, "I don't believe that will change the total amount leaking".

US authorities and BP are racing to try to contain a huge oil slick from the ruptured well that is threatening four Gulf coastal states.

BP stems one of three Deepwater Horizon oil leaks, US coastguard saysWork unlikely to reduce overall oil flow into the Gulf of Mexico, but will ease efforts to contain the slick

Boats with oil booms try to contain oil spilled from the explosion and collapse of the Deepwater Horizon rig in the Gulf of Mexico Photograph: Gerald Herbert/AP

The US coastguard says BP has managed to cap one of three leaks from its stricken deepwater oil well, but the work is not expected to reduce the overall flow of oil into the Gulf of Mexico.

The work should reduce the number of leak points that need to be fixed on the ocean floor, making it easier to drop a containment dome to bottle up the disastrous oil spill threatening sealife and livelihoods along the Gulf Coast.

Since an explosion on 20 April, 50 miles off the coast of Louisiana, the Deepwater Horizon well has been spewing at least 800,000 litres a day.

Experts say the best short-term solution is to drop a specially built giant concrete-and-steel box designed to siphon the oil away over the breach.

Crews for Wild Well Control, a contractor, are putting the finishing touches on the 100-ton containment dome, which is expected to be taken to the leak site today. John Curry, a BP spokesman, said it would be deployed on the seabed by tomorrow.

It's the latest attempt by BP engineers to stem the oil from the rig, which killed 11 workers when it exploded. It sank two days later, and oil started pouring into the Gulf. BP is in charge of the cleanup and President Barack Obamasays the company is responsible for the costs.

Officials said that capping one of the three leaks was a step towards stemming the flow. "It doesn't lessen the flow, it just simplifies the number of leak points they have to address," David Mosley, a coastguard petty officer 1st class, said.

A rainbow sheen of oil has reached land in parts of Louisiana, but the gooey rafts of coagulated crude have yet to come ashore in most places. Forecasts showed the oil wasn't expected to come ashore until at least tomorrow.

"It's a gift of a little bit of time, I'm not resting," said Mary Landry, a US coastguard rear admiral.

In their worst-case scenario, BP executives told members of a congressional committee that up to 9.5m litres a day could spill if the leaks worsened, though it would be more like 6.5m litres.

The worst oil spill in US history resulted from the 1989 grounding of the Exxon Valdez oil tanker in Alaska. It leaked nearly 11m gallons (41 million litres) of crude.

Containment domes have never been tried at this depth, about 5,000ft (1,500m) because of the extreme water pressure. The dome, if all goes well, could be fired up early next week to start funnelling the oil into a tanker.

It was not clear whether the equipment would work, said Bill Salvin, a BP spokesman. "What we do know is that we have done extensive engineering and modelling, and we believe this gives us the best chance to contain the oil, and that's very important to us."

Yesterday seas calmed allowing more conventional methods to contain the spill to get back on track as businesses and residents kept an eye on the ocean currents, wondering when the sheen washing ashore might turn into a heavier coating of oil. Crews put out more containment equipment and repaired some booms damaged in rough weather over the weekend. They also hoped to again try to burn some of the oil on the water's surface.

Chemical dispersants piped 1,500m to the main leak have significantly reduced the amount of oil coming to the surface, BP said. The company also hoped to shut off one of the smaller of three leaks, though it may not reduce the flow very much, said Doug Suttles, BP's chief operating officer.

From the air yesterday, the site of the Deepwater Horizon explosion looked similar to a week ago, except for the appearance of a massive rig brought in to drill a relief well to shut off the spewing oil. However, that would take months.

People along the Gulf Coast have spent weeks living with uncertainty, wondering where and when the oil may come ashore, ruining their beaches and their livelihoods.

The anxiety is so acute that some are seeing and smelling oil where there is none. And even though the dead turtles and jellyfish washing ashore along the Gulf of Mexico are clean, and scientists have yet to determine what killed them, many are sure the flow of crude is the culprit.

The rig was owned by Transocean. Some of the 115 surviving workers aboard when it exploded are suing the company and BP. In lawsuits filed yesterday, three workers say they were kept floating at sea for more than 10 hours, while the rig burned uncontrollably. They are seeking damages.

Guy Cantwell, a spokesman for Transocean, defended the company's response, saying 115 workers got off alive. Two wrongful death suits have also been filed.

Read More

Saturday, May 1, 2010

A subcontractor Transocean reportedly modified the BOP without the knowledge or permission of BP

Exclusive from Andrew Halcro

In what stands to be one of the biggest oil spills in the history of the United States, the possible cause of the spill now appears to be an unauthorized modification of the blow out prevention (BOP) valve.

Oil rig explosionBP's Deep Water Horizon oil rig exploded and sank off the cost of Louisiana last week. Eleven rig workers are missing, which was operated by Swiss-based Transocean Ltd, the largest independent driller in the world.

A subcontractor Transocean reportedly modified the BOP without the knowledge or permission of BP, to the government regulators who okayed the modified BOP, to the Obama administration who wants to look tough on BP even thought the company had no culpability, everyone but BP is running for cover.

New evidence shows BP will eventually be exonerated.

Read More

This document is also packed full of information concerning the blast aa well as pictures of the Horizon

Sunday, March 21, 2010

PLAN B- When AGIA Fails

There is no doubt that the long-desired pipeline to carry gas from Alaska, through Canada, to the Lower 48 -- the so-called "Big Line" -- is in significant trouble.

To be sure, the Parnell administration has attempted to convince Alaskans otherwise to justify the state government's continued $500 million subsidy of TransCanada's project under the Alaska Gasline Inducement Act. However, the observations of as diverse a group as the highly respected Potential Gas Committee, the federal Energy Information Administration and long-time and widely regarded consultant (sometimes to the Alaska government) Daniel Yergin clearly demonstrate the gravity of the situation.

In a November article in The Wall Street Journal that summarized the effects of what Yergin terms the shale gas "revolution," he concluded, "[a]t current levels of demand, the U.S. has about 90 years of proven and potential supply -- a number that is bound to go up as more and more shale gas is found." Against those numbers, is it realistic to think that producers will risk the $25 billion to $30 billion necessary to build an Arctic pipeline to attempt to penetrate an already oversupplied Lower 48 market? Not really.

So what happens to North Slope gas -- which is almost as important going forward to the Alaska economy as incentivizing continued development of Alaska oil -- if the Big Line fails (or to use the EIA's gentler term in a November study, if it is "significantly deferred")? Because the groundwork is in the process of being laid now, Alaskans should focus on -- and ask those who propose to lead them -- what is "Plan B?"

Three scenarios -- all led by various government components -- are materializing. The first two focus on other methods for developing a market for Alaska's North Slope gas. Oddly, the third scenario goes in reverse, and proposes steps that undermine monetizing Alaska's North Slope gas.

The two that develop a market for Alaska's gas are the Alaska Gasline Port Authority's Valdez liquefied natural gas project, which is the centerpiece of Bill Walker's campaign for governor, and the North Slope to Southcentral bullet line, most recently in the news as a result of Harry Noah's resignation from the Department of Natural Resources.

Of these, the bullet line clearly creates the best future for Alaska in a Plan B world.

Why is the bullet line the best? That is easy. The bullet line bundles a number of markets together in one project, and by doing so achieves the lowest cost for all users. It supplies gas to Fairbanks -- which needs a cleaner fuel to address the area's increasingly worrisome environmental issues. It brings gas to Southcentral -- which even the Parnell administration is now beginning to admit needs new gas supplies to offset declines in Cook Inlet production.

The Bullet line also creates the potential for a value-added industry in Alaska, such as the proposed, large scale gas-to-liquids project, which depends on the Cook Inlet's depleted oil and gas reservoirs to store the carbon dioxide produced from the process. The bullet line additionally brings a supply of gas to the Pebble Project, which because of the size of its demand for gas, would significantly reduce the transportation costs borne by other Southcentral consumers. Also, the bullet line provides a means for monetizing Alaska's North Slope gas on a large scale by moving it to tidewater (albeit the Cook Inlet), paving the way for an LNG export project.

By bringing all of these requirements together, the bullet line produces the lowest cost transportation option for all users, and, in doing so, creates the greatest potential that each project it touches clears its economic hurdles.

Read More

Sunday, January 17, 2010

So far, Parnell looks like Palin Lite

I had high hopes for Sean Parnell when he took office last July. After Sarah Palin, it seemed a bright young governor who had a positive relationship with the oil and gas producers would be an improvement.

But so far, Parnell has looked more like Palin Lite, a charisma-free copy of his predecessor. He still has time and opportunity to redeem himself, notably if he kills that foolish attempt by Tom Irwin and Marty Rutherford to cancel the Point Thomson oil and gas leases held by Exxon and its partners.

It should be an easy decision. After all, if state lawyers get the Superior Court judge’s decision overturned and Natural Resources Commissioner Irwin’s attempt to cancel the leases is upheld, they could kill the gas pipeline. It really is as simple as that.

The state’s tussle with Exxon over development of Point Thomson goes back a long time. The company appeared to be dragging its feet on drilling and development for years, though there was no pipeline to take the gas away and the high-pressure field has tremendous engineering challenges, on which it spent many millions.

In 2006, Gov. Frank Murkowski decided to poke his finger in the corporate giant’s eye and moved to cancel the leases. Asked later why he did it, Murkowski said he wanted the Exxon people to come back with a better development plan and a firm commitment to carry it out. “And they did,” he said.

But Palin, Irwin, Rutherford and now Parnell have continued the fight and carried it to ridiculous extremes, putting Alaska’s economic future at great risk. Last summer, Irwin said he didn’t trust Exxon to fulfill its promises, so the commissioner’s uneasiness keeps the legal battle raging. He should try taking a Valium.

The gas pipeline is no sure thing by any means. And Point Thomson contains more than 8 trillion cubic feet of gas, a volume needed for pipeline viability. If those leases get tied up in a decades-long legal hassle — to ease Irwin’s worries — the gas could be nearly worthless by the time the mess gets untangled.

Irwin and his deputy Rutherford are both good people, but they have a doggedly negative attitude toward the North Slope producers that should disqualify them for their jobs. If they persist in the attempt to get the leases canceled, and Parnell goes along with it, this state may find itself back where it was at statehood in 1959, but without the bright prospects.

Idiotic public policy sometimes seems a way of life in Alaska. And that aimed at Exxon in retribution for the 1989 tanker disaster — plus the Palin-Irwin-Rutherford claim that Alaska didn’t get a big enough share of the North Slope pie — is classic dog-in-the-manger politics.

Oil money has funded this state’s government for two generations, Alaska did away with its state income tax 30 years ago and we have a free-money program that sends just about every living soul here a nice check every October.

State leaders came to terms with the companies exploring and developing the North Slope years ago. As a result, billions in investments were made, billions in taxes and royalties were collected. But now some of our leading lights want more. If this were 1898 and you tried that on a gold mining partner, you would be asking for a necktie party.

Sure, it’s politically incorrect in Alaska to say good things about Exxon. I don’t know any of the current bunch, but some of the finest people I’ve ever met were Exxon employees. That includes Otto Harrison, who headed up the Exxon Valdez cleanup; many of the engineers and managers who worked for him and those that helped build the trans-Alaska oil pipeline; and the late Max Nalley, who was the company’s public affairs manager for several years.

The list also includes my old hunting and fishing buddy, Hank Rosenthal. Hank was delivered to Alaska by the icebreaking tanker Manhattan, which reached Prudhoe Bay via the Northwest Passage. He was the public relations guy on the project. I was in public affairs at ARCO in those days and Rosenthal became my Exxon counterpart (actually the company was named Humble Oil & Refining in those days).

Hank and I both had statewide responsibilities and could always come up with a reason to meet with people in Unalaska when the geese were in at Cold Bay, Southeastern Alaska when the ducks were flooding in there, and in summer anywhere the salmon were running.

Hank left Exxon sometime in the 1970s and took my job at ARCO when I decided to bail out in 1980. (I gave him a heads-up before I told my boss I was quitting.) He came back to Alaska and married one of my favorite liberals, former Assemblywoman Heather Flynn. Hank fought in the Korean War and survived fighting at the Chosin Reservoir, but was killed in 2003 by a curb-jumping taxi while on vacation in Prague.

So don’t bad-mouth Exxon people around me, friend. Say what you want about Joe Hazelwood and the company’s lawyers, but there are a lot of good people at Exxon. I’ve known many of them.

If Sean Parnell and Tom Irwin don’t smarten up about Point Thomson and drop that stupid lawsuit, I just might say bad things about them.

* * *

I’m a humanitarian kind of guy. For instance, I think we should treat attempted undie-bomber Umar Farouk Abdulmutallab humanely. Police should give him a clean pair of exploding shorts, light his fuse and send him on his way, perhaps into an unoccupied field of clover.

Of course, that won’t happen. The United States is teaching the terrorists about democracy a little at a time. Their latest lesson, for instance, is that when things go wrong, lawyer up and demand your rights as a non-resident attempted mass murderer. Don’t forget to ask the policeman to read you your Miranda rights.

Terrorists also learn quickly that — if things go wrong — they are most likely to become guests of the American government, be sentenced to three nutritious meals a day and a comfortable bed, and given access to exercise equipment and lots of television, movies and other forms of scandalous entertainment. Unless sent back home to attack America again, they will suffer such infidel indignities for the rest of their lives.

I like my way better.


Tom Brennan is author of The Snowflake Rebellion, a tongue-in-cheek novel about Alaska seceding from the union, and three other books. His Website is: http://arcticternbooks.com/

Sunday, January 3, 2010

Russia-Belarus Oil Dispute Threatens Europe’s Supply

MOSCOW — Russia and Belarus have failed to renew an agreement on crude oil export tariffs that expired on New Year’s Eve, raising the prospect that yet another otherwise unremarkable energy pricing dispute between Russia and a neighbor could unravel into a midwinter fuel shut-off on the Continent.

Just a year ago, Europeans shivered through a politically tinged dispute that went on for weeks between Russia and Ukraine over natural gas prices and transit fees.

This year, the crude oil pipeline that is the focus of disagreement is integral to exports of Siberian petroleum to Western Europe as part of the Soviet-era Druzhba pipeline system.

As is the case with natural gas pipelines in Ukraine, about 1.3 million barrels of oil per day shipped along the Belarussian spur of the Druzhba pipeline supply both the internal market in Belarus and the more lucrative markets in the European Union, like Germany and Poland.

On Sunday, Reuters cited two oil traders as saying that Russia had begun curbing supplies to the domestic market by cutting the flows to two refineries, Naftan and Mozyr. In Ukraine last January, that was a first step toward a more general shutdown.

Russian officials took pains to emphasize that the export volumes would continue to flow, while either refusing to confirm or denying the report of a local shut-off in Belarus.

A Russian Ministry of Energy spokeswoman, Irina F. Yesipova, said the transit flow en route to Western markets, a supply big enough that its disruption could raise global oil prices, had not been and would not be halted. She declined to comment on the domestic supplies in Belarus.

A senior official at Transneft, Russia’s state oil transport company, said in a telephone interview that the company continued to supply both the internal Belarussian market and export markets at full volume.

“We have not stopped pumping, not to Belarus, not for export,” said the official, who was not authorized to speak publicly.

A duty officer at the Belarussian Foreign Ministry referred questions to the Ministry of Energy, whose phones were not answered on Sunday.

Belarus is one-half of a loose confederation with Russia that was supposed to eventually lead to a common currency and customs zone. Yet in the oil business, so vital to Russia’s economy, Belarus was treated with privilege but as less than a fully integrated partner.

Refineries in Belarus paid a fraction — 35.6 percent — of Russia’s standard crude oil export tariff. The Belarussians, though, were able to re-export the gasoline, diesel, bitumen and other products to Europe at a healthy profit. This trade helped prop up the government of Aleksandr G. Lukashenko, the Belarussian president, at Russia’s expense.

The oil agreement with Moscow expired Dec. 31. Russia’s deputy prime minister for energy, Igor I. Sechin, had said that lacking a new deal, Belarus should pay the full export tariff on Russian crude, the Russian state RIA news agency reported.

Belarussian officials responded that their country should pay no tariff because it had renewed its commitment to a customs union with Russia just last year, according to a statement posted on the government’s Web site.

Before the New Year, the Belarussian delegation left Moscow, and the government in Belarus posted a statement saying that they had been subjected to “unprecedented pressure” to acquiesce to Russia’s demands. Both sides, however, said Sunday that negotiations were continuing.

Last January, the Russian natural gas monopoly Gazprom first tried to halt supplies to Ukraine’s domestic market in a pricing dispute. It then shut down the pipeline entirely, accusing the Ukrainians of continuing to supply their own needs by siphoning gas intended for export.