Shale to the rescue?

I'm always in the market for some good news, maybe this is it.

Great Bear Petroleum is on the hunt for oil and natural gas liquids in Alaskan shale deposits. (Graphic - Map of Great Bear lease, from the AOGA website)


This isn't new news (Alaska Dispatch and Petroleum News ran the story back in March) but the irony just sunk in. With all the hub hub going on in the Eagle Ford shale what if Alaskan Shale was the next big thing? I like ideas that have the potential to help two Alaska pipelines - TAPS and the gas line.

Good luck Great Bear - provide some updates when you get a chance.

More LNG exports considered

This time Shell is considering LNG exports to Asia from B.C. From the Vancouver Sun:

In Canada, Shell Canada paid $5.9 billion in 2008 to buy Duvernay Oil Co., a major player in B.C.’s Montney shale gas deposit near Dawson Creek.

Petroleum Intelligence Weekly reported shortly after the Japanese tsunami in March that, as a result of the destruction of two nuclear reactors there, “Shell and its Asian partners could scale their proposed Prince Rupert plant in British Columbia toward the top end of its mooted 8.5 million-14.0 million tonnes/year range.”

Those volumes equal 25% to 40% of the capacity of the Alaska Gas Pipeline (4.5 BCFD). A pipeline from Dawson Creek to Prince Rupert would be about 400+ miles long as the raven fly vs. 800+ miles for a North Slope to Valdez line. Based on flow rates the line would be 24" to 30" vs. 48" for the proposed Alaska Gas Pipeline.

I have mixed feelings about this story - First it's good to see North American shale gas sponged up for export, however my "something is not right here" alarm is going off. If an Alaska LNG plant at Valdez is not feasible, exporting LNG to Asia at $12/MMBTU - how can a smaller plant be justified in Canada? In Alaska, the wells are drilled, in Canada (shale gas) wells are yet to be drilled, and shale gas completions are not cheap.

Update: More from Petroleum News (Link). Perhaps the "Floating Technology" will play a role enabling plant owners the chance to drag up and move the plant if and when the return on capital employed drops below other opportunities.

Economy of scale should work in favor of Alaska - double the length of the pipeline for more than double the amount of gas. Of course economy of scale drop for smaller Valdez LNG plant options (LINK to AGIA Findings LNG Chapter).

Something to keep an eye on. And by the way - where's the Asian interest in Alaska gas?

Boone Pickens on CNBC

I follow T. Boone Pickens because his plan will boost gas sales, increase demand and by extension boost gas prices back to a range that will support development of the Alaska Gas Pipeline.

Today Pickens ranted a bit on CNBC (LINK) today. Aside from his remarks about OPEC funding the Taliban and disparaging remarks about the Koch brothers he also attacked the idea of exporting LNG from the U.S., specifically from Cheniere.

By his logic we are importing dirty oil and exporting clean LNG.

I take issue with this - First we import oil, refine it and use it, but we also export refined products (about 450,000 bbls/day) - good lets build our export economy. Secondly we import a lot of high sulfur "dirty crudes". Many of our refineries are designed and tuned to run on these less expensive feedstocks - another good thing let's use technology to exploit the full range of available feeds. Third - I'm all for exporting U.S.A LNG - it will sponge up excess lower 48 shale gas, boost our economy and help build price support for the Alaska Pipeline.

Speaking of sponging up cheap shale gas - I think the free market is catching on to the idea of converting to cheap gas. Follow this link to see all the CNG fueling stations. It's still early days, but CNG may be the breakout alternative fuel.

Agrium - Moving to Nigeria

Agrium is shipping out, literally to Nigeria (link). Free markets have a way of voting with their feet. If market conditions, raw materials, or government policies don't work for a business they up and leave. I had wondered if closing the LNG plant would free up enough Cook Inlet gas to restart Agrium - boy was that bad idea.

Coming to a plant near you?


Years ago I worked on a job that packed up a chemical plant and shipped it overseas. I've seen industries pack up and go. Nobody is hanging around waiting for a pipeline. If Alaska wants a gas pipeline I suggest a 10 year tax holiday starting in 2020 and a guaranteed rational rate for the first 10 years after that.

AGIA, Denali, Exxon, Shale Gas, and all that

The announcement this week that the ConocoPhillips / BP Denali project is over (link) has the pundits punditizing. The alternative plans are rampant: terminate AGIA, built a LNG plant in Valdez, build a small line to _______fill in the blank, make petrochemicals, make methanol, make ethanol and so on.

Concerning AGIA. It's all about unintended consequences and timing. Amanda Coyne of the Alaska Dispatch assembled a good timeline of recent efforts to build an Alaska Gas Pipeline (LINK). Let's add price data to the pivotal points in the timeline:

March 2007, Sarah Palin rolls out AGIA, well head gas price = $6.65/mmbtu.

January '08 AGIA has five bidders, gas at $7.38/mmbtu

April '08 ConocoPhillips & BP form Denali, gas at $8.87/mmbtu

June '09 ExxonMobil joins the TransCanada AGIA licensed project, gas price $3.38/mmbtu

December '09 Exxon announces acquisition of shale gas producer XTO, gas price $4.66/mmbtu.

What this data shows is that AGIA imposed a delay of about 4 years at the precise time that gas prices and support for a pipeline surged. It also shows that Exxon joined the TransCanada project near the lowest point in the gas price cycle. It also shows that Exxon made it's big move in natural gas about the same time and also at low gas prices - Exxon clearly picked a shale gas winner (XTO) and bought in at a cyclic low, and built a foundation for a future Alaska gas pipeline. In May '09 Exxon was drilling in the gas-rich Point Thomson field, gas price $3.23/mmbtu.

I'm going to go with the premise that Exxon got it right and that the State of Alaska got it wrong. Got it wrong in several ways, but mainly via AGIA and oil and gas taxes.

So what's next? Denali's collapse shows that a couple of well financed oil and gas firms can't fund an Alaska gas pipeline any time soon. At least they can't get it done without Exxon. AGIA may get chased out of town by villagers with pitch forks sometime soon, but I think we can judge Exxon's intentions by their actions, specifically why are they drilling at Point Thomson unless they believe in a pipeline? I don't like the 2020 date proposed for Alaska Gas flowing, but that's probably what we can expect. We're probably 3 years and 150 hopeful blog posting away from kicking off the project.

Exxon and other producers, and maybe TransCanada will move forward because natural gas will become a bigger part of the power generation mix, and because the lower 48 will begin to export LNG (LINK: Cheniere Unit Wins US Approval To Export LNG From Louisiana). The potential Cheniere export volume (2.2 BCFD) equals roughly half of the proposed Alaska gas pipeline volume (4.5 BCFD). Moves like this will be the game changer, this time back in the favor of Alaska.

Keep in mind any optional use of natural gas is less expensive to execute in the lower 48. LNG export plants, petrochem plants, gas to liquids (GTL) plants, methanol, plastics you name it - I can build it cheaper on the Gulf Coast and feed it with cheap shale gas from Texas and Louisiana.

LNG export and the Fukushima effect will sponge up $4/mmbtu shale gas and prices will move back to $6/mmbtu by the end of this decade. $100/bbl oil will drive heavy oil production in Canada and that will drive gas demand.

BP, ConocoPhillips OUT

The Denali Pipeline is discontinued for lack of customer interest. We can't says this is a real shocker. From day one we realized that two mainline projects was one too many.

Denali News release (LINK). Quote"

Denali – The Alaska Gas Pipeline announced today that its open season efforts have not resulted in the customer commitments necessary to continue work on its Alaska North Slope gas pipeline project, which has an overall estimated capital cost of $35 billion (2009 dollars). Denali will withdraw its Federal Energy Regulatory Commission pre-file application and, over the next few months, close out its operations.

“Denali is ending its efforts because of a lack of customer support,” said Bud Fackrell, Denali President.“Denali is a market-driven company. As such, we cannot spend the billions of dollars necessary to advancethe project unless we have binding agreements with shippers. Although we have been in discussions with potential shippers for nearly a year and half, we have been unable to secure the financial commitmentsnecessary to advance the project.”

Bloomberg article (LINK) Quote:

Larry Persily, the U.S. government’s federal coordinator for Alaska gas transportation projects, said in a statement that he hopes BP and ConocoPhillips can someday work with Exxon and TransCanada on a pipeline project.

“There could be a place in the market for North Slope gas in the 2020s and beyond, and the gas line is too important to Alaska’s economy not to keep trying,” Persily said.

The real question now is whether or not ConocoPhillips and BP will become customers of the last project standing - the Alaska Pipeline Project.

The Globe and Mail sees a possible win for the Mackenzie pipeline if the APP also stumbles (LINK).

Trends and News

Shale gas development has threatened the Alaska Gas Pipeline, but there are trends that will build demand for North American gas:

Japan drops nuclear expansion plans (LINK) - this can only boost LNG demand.

Japan's reliance on LNG grows (LINK)

Southern Union, BG apply for LNG export license (LINK). The lower 48 is awash with $4/mmbtu shale gas - it's only a matter of time before this cheap gas is sponged up by LNG exporters. More on "wet shale" and LNG (LINK).

The natural gas glut is disappearing (LINK).

Fed AK-Gas Coordinator Larry Persily still thinks the Alaska gas pipeline is a go: (LINK) A quote from the News Miner article:

Dozens of federal agency personnel in Washington, D.C., and Alaska are working hard, reviewing the project’s first resource reports that came in last month, preparing for permit applications and talking with project sponsors to ensure everyone knows what’s needed. Canadian officials are doing the same, from Ottawa to Whitehorse. Only the private sector, however, can decide if the pipeline is a good business decision. The best course of action is a single project sponsor team, working with the state and federal governments to pull together the deal.

More on LNG markets and the push to export LNG from the lower 48 (LINK).

Link of the week

Since there's no gas pipeline progress to report this week I'll post the following link, an new report from USGS titled "Economic Analysis of the 2010 U.S. Geological Survey Assessment of Undiscovered Oil and Gas in the National Petroleum Reserve in Alaska"

From a gas pipeline perspective the report underscores the need to build the pipeline and the future roll of gas exploration in the NPRA. The report also touches on the future of natural gas pricing and the possible impacts of recent nuclear plant accidents (pages 28, 29, & 30).