Thursday, January 29, 2009

About the Pipe

Steel prices have dropped due to the global financial worries. Delays and cancellations of large energy projects are starting to effect pipe mills (LINK) .

In particular, there is a growing demand from energy firms for X-100 and X-120 grade steel pipe that is 48 inches or larger in diameter. X-100 and X-120 are specialty steel alloys consisting of nickel, chromium, molybdenum, niobium, titanium, and copper.

Currently, X-100 and X-120 grade steel pipes are manufactured solely by Nippon Steel and Mitsui.

North American pipe-makers currently offer large diameter pipe with X-70 and X-90 steel grades.
Here's the math: Less steel is needed to build a high pressure gas line if you use high strength steel (X-100 & X-120) vs. lower strength steel (X-70 or X-90). Less steel equals less cost, reduces the customer cost paid for the natural gas.

The Japanese have long term needs for natural gas in the form of LNG, the technological ability to supply high strength pipe, and open capacity to produce the pipe. Why haven't they stepped forward for an equity position in an LNG project?

For Alaskans and the Alaska gas producers there are several advantages over the proposed Canadian pipelines:
  1. Reduced cost (shorter pipeline)
  2. 100% In State All-Alaska All-USA pipeline.
  3. Equity partner / Long term customer, reduces project cost and nails down future income model.
  4. Market Flexibilities - LNG can be sold to multiple markets (West Coast / Asia) vs. a single market via pipeline.

The Value of Alaskan LNG

Here's an article from Bloomberg with details of the Japanese purchase of Nikiski LNG. The price paid for the LNG caught my eye - $8.8 /MMBTU.

“The Alaskan contracts are hugely symbolic to the Japanese and I can’t see them giving them up or letting another buyer get access to those volumes,” said Tony Regan, an oil and gas consultant based in Singapore. “There are bigger renewals due this year from Australia and Indonesia.”
Here's my question - The Japanese pay a good price for Alaskan LNG, they are the largest LNG importer in the world, they sign long term contracts - Why haven't they expressed an interest in an equity position in an Alaskan LNG project using North Slope Gas?

Wednesday, January 28, 2009

Pt. Thomson - A Temporary Reprieve

Maybe there's enough time to get some work done this winter: (LINK)

Natural Resources Commissioner Tom Irwin announced he has "conditionally reinstated" two of the leases at Point Thomson, an oil-field unit that once encompassed more than 100,000 acres (40,000 sq km) and 45 individual leases.

"In my interim decision, I made clear to Appellants that I will hold them to their unconditional commitment, made under oath, to drill and produce from these wells and that failure to abide by their commitments will result in the automatic termination of these leases according to the lease terms," Irwin said in a statement.

This is good news in terms of putting folks to work now and setting the stage for a successful open season for the Alaskan Gas Pipeline in 2010.

(Link to DNR Announcement)

Saturday, January 24, 2009

Dim Outlook For Denali?

With crude oil trading in the $40's and natural gas below $5/MMBTU I was really not surprised to hear this news from Denali Pipeline partner BP (full story link)

"It's not a pretty story right now in terms of North American natural gas markets," Brian Frank, president of BP Energy Co and BP's North America Gas and Power, said at the annual conference held by the Alaska Support Industry Alliance.

Frank said he remains a believer in the Alaska natural gas project. But it can be successful only if there is a "stakeholder alignment," he said. "Without it, it's difficult to visualize the project going forward," he said.

Such alignment includes regulatory and fiscal "reliability" from the state of Alaska, Frank told reporters after his speech. "How do you know the economics for your project if you don't know what you're going to pay in taxes?" he said.
By comparison the Canadians took steps towards "stakeholder alignment" and fiscal certainty this week by announcing that the Canadian Government will offer financial support for the Mackenzie pipeline. Partnership vs. combativeness - now there's a novel approach, an approach that will probably lead to a pipeline decades before an Alaskan Gas Pipeline.

Tuesday, January 20, 2009

Canadian Government to Back Mackenzie Pipeline

Forward progress on an Arctic Gas Pipeline. (LINK) This is good news for the engineering firms, construction companies, the producers and all the working folks that actually build the big projects.

If the Mackenzie Pipeline breaks ground before the Alaska gas line it could represent a huge opportunity lost for Alaska.

The announcement is short on details but the timing is great - many projects have been canceled and the cost of commodities like steel is down.

A few more details on the Forbes site (LINK):

CALGARY, Alberta, Jan 19 (Reuters) - Canada has offered financial support for a C$16.2 billion ($13 billion) Arctic gas pipeline, the country's environment minister said on Monday, aiming to revive a struggling proposal to tap vast northern reserves with industry conditions worsening.

The offer to Imperial Oil Ltd and the other backers of the Mackenzie Gas Project would include chipping in money for infrastructure, such as roads and airstrips, as well as pre-construction expenses, Jim Prentice said.

Sunday, January 11, 2009

How is Your Project Going?

My new year started with the news that I can look forward to full year of overtime to meet an aggressive schedule. I may be on one of the only projects like that this year (recognizing full well that tomorrow we could all get laid off!).

Here's what I hear from others - One project has a hiring freeze, but construction is moving forward. Another buddy reports that his company has canceled all capital work for this year - Ouch.

Another project is in full scale layoff mode with folks packing their bags.

I don't want to discuss specifics, but how is your project going? - whether you work in the field or the home office I'd like to know how this slowdown is affecting you and where you see potential.

I get the feeling I'll be working on something other than the Alaska Gas Pipeline in 2010. That's a pity because the price of steel is down and labor is available. When this recession/depression ends our nation is going to need the energy.

Please comment, fill out the poll or both. Thanks!

Saturday, January 10, 2009

Rex Tillerson Discusses the Long Term Approach

Rex W. Tillerson Chairman and CEO, Exxon Mobil Corporation had some things to say about energy politics and the business cycle.

"The energy industry is a long-term enterprise, and decisions made today can have consequences for years to come. While elected officials understandably tend to think in terms of two, four or six years, based on election cycles, energy companies must necessarily think in terms of two, four and six decades, consistent with the lifecycle of our resource-development projects.

Even in the midst of our current economic downturn, which includes a return to more historic levels of crude oil prices, my company remains committed to investing in projects and technologies to meet tomorrow’s needs. Our business model is based on rigorous and realistic long-term planning. We try to look through near-term events. As part of this planning, we work to recognize risk factors that we know about today and can manage with the acknowledgment that there will be unforeseen risk factors that we will also have to manage in the future.

Our approach enables us to manage the risks inherent in the energy business and in the broader business cycle. As a result, for more than 125 years we have helped fuel the American economy – during good times and during bad times."

Does the reference to elected officials who think in two to four year time frames sound like anybody we know?

TransCanada Debt Grows

Get them while they're hot! TransCanada, the Alaska Gasline Inducement Act licensee is offering big interest rates on a multi-billion dollar bond issue:

Canada-based TransCanada Corp. on Friday said its subsidiary, TransCanada PipeLines Ltd., completed an offering of $750 million of 7.125 percent senior notes and $1.25 billion of 7.625 percent senior notes to partially fund capital projects and pay off debt. The first note is due Jan. 15, 2019 and the second note is due Jan. 15, 2039.

Standard and Poor's Ratings Services assigned its "A-" rating to these two senior notes and to the company's long-term corporate credit rating, saying the investment grade rating reflects the "mature-but-predictable earnings stream" from its natural gas pipeline operations and assets, the high level of free cash that its operations generate and the cash flow's increasingly diverse sources. However, S&P added, the company's leverage, expensive capital projects in the next two years and concerns over its nuclear operations expansion constrain the ratings.

(Link to Forbes)
I'm glad to hear that TransCanada is among the firms that continues to fund a pursue projects - that employs people and that's a good thing. Having said that it's still unclear how they will fund a $40 Billion gas line with their current financial resources.

Thursday, January 1, 2009

Sideways in ‘09

Alliance Breakfast Forum

First the good news: 2008 ends with TransCanada and the Denali Pipeline are working towards an open season in mid 2010. Steel prices are dropping.

The not-so-good news: The current low energy price trend combined with the credit crunch will conspire to limit or delay investment in the Alaska Gas Pipeline. Financially weak players like TransCanada don’t have the money to build a gas pipeline or the gas to fill it. (Link to TransCanada Colorado pipeline story)

Compounding factors: 1) The executive branch of the State of Alaska can’t get unstuck from stupid concerning Exxon. The “Drill Baby Drill” Governor has blocked Exxon from developing Point Thomson (Link to a speech by Larry Persily).

2) Lower 48 gas discoveries and development will continue to moderate gas prices. Energy producers will commit scarce funds in energy business friendly states before plunging into an Alaska Gas Pipeline project with no fiscal certainty.

The Wildcard: Barack Obama. Rescue programs, stimulus checks, bailouts, loans, debt swaps, you name it – 2009 will see a number of attempts to delay or deny the consequences of a decade of idiotic spending and lending. Obama is a wild card for the Alaska Gas Pipeline because it may seem like a good idea at some point to throw funding at the project in hopes of a favorable sound bite or two. Probability: Low, the happy bucket of bail out money will run dry long before the energy sector will get a dime, and that’s probably a good thing.

Prediction – Sideways in ‘09 No forward progress, no major setbacks.