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.

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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."