Daily Archives: September 14, 2011

Free-market energy solutions don’t jeopardize national security

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By: Reps. Mike Pompeo, R-Kan.,
Jeff Flake R-Ariz.
09/13/11 8:05 PM

By spurring development of the politically favored alternative fuel of the moment, devotees of federal energy subsidies say that we can stop sending dollars overseas. Details of the Solyndra scandal continue to unfold, but what we know so far should teach the Obama administration a valuable lesson: The government should not be in the business of picking winners and losers.

Unfortunately, some conservatives — trying to promote national security — fall into the same trap of arguing for alternative energy subsidies. Interests ranging from solar to wind, from propane to biodiesel, from natural gas to algae, purport to provide the key to America’s energy and national security needs, but having the president or Congress pick winners and losers in the energy sector is neither practical nor principled.

We can agree that having less oil imported from the Middle East would improve America’s national security interests. But we also agree with the chairman of the Joint Chiefs of Staff, Adm. Mike Mullen, who said, “Our national debt is our biggest national security threat.” In 2009 alone, the government gave more than $18 billion in handouts to a wide variety of energy sources, including wind, hydrogen, natural gas, oil and ethanol. With the federal debt estimated to hit $25 trillion by 2021, the United States must get its financial house in order. It cannot continue throwing billions of taxpayer dollars away on federal energy subsidies.

Not only are subsidies that try to artificially inspire a market for a given product unaffordable, they simply aren’t effective. Subsidy policy toward the renewable and alternative fuels industry has been tried for more than three decades — from President Carter‘s Synfuels Corp. in the early 1980s to President Obama’s Solyndra just this year — and it has failed.

Alternative energy producers often say they are just five years of handouts away from being viable on their own. But when those five years are up, these same folks come back for more because customer demand alone will not support any industry that depends on government handouts. It’s precisely this phenomenon that led President Reagan to observe that “nothing is so permanent as a temporary government program.”

With federal subsidy policy failing, how can we make U.S. energy policy reflect our national security interests? First, we must lift the de facto moratorium on domestic energy exploration — off the Gulf Coast, on the Outer Continental Shelf, and elsewhere. Second, we must remove regulatory burdens, such as the threat that the Environmental Protection Agency will halt hydraulic fracturing. And finally, we have to stop wasting taxpayer dollars on energy sector subsidies.

Phasing out market-distorting energy subsidies (and preventing the expansion or creation of new ones for the “latest, greatest” technology) must be part of the strategy. Subsidies such as fuel tax credits for ethanol, hydrogen and natural gas are set to expire soon. There is no reason to pile on our debt while simultaneously distorting the market for fuel products. It is far better to allow market competition to determine which alternative energy sources will succeed.

Although subsidy seekers argue that the Organization of Petroleum Exporting Countries‘ dominant position in the world oil market means that government intervention in the energy marketplace is warranted, that logic is flawed. If collusion by the OPEC cartel really boosts the price of oil artificially high, then alternative fuels should have an easier time competing against it without a subsidy. In fact, the constant pursuit of federal tax subsidies keeps some private capital on the sidelines that would otherwise be invested in alternative energy.

Looking at our energy policy through a national security lens only strengthens the argument for relying on free-market solutions. As the Solyndra example demonstrates, the stakes are simply too high to cast aside the single best arbiter of capital allocation in human history — the free market — in favor of misguided central planning via government mandate.

Original Article

Cyprus to Press Ahead with Offshore Drilling Despite Turkish Objection

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EU member Cyprus vowed on Wednesday to keep Turkey’s entry talks on hold as long as Ankara challenges the island’s rights to launch offshore gas drilling, in an escalating row among east Mediterranean neighbours over hydrocarbon reserves.

Rhetoric over ownership of speculated oil and gas deposits has sharpened after a deterioration of relations between Turkey and Israel, the discovery of massive gas fields by Israel and plans by Cyprus to drill as early as next month.

Cyprus, split during a 1974 Turkish invasion after a brief Greek-inspired coup in which Turkey took control of the island’s north, has blocked the opening of several negotiating chapters in Turkey-EU entry talks. One of those is energy.

“The position of Cyprus has not changed. Turkey must make a formal commitment to the EU that it will end its provocations towards the Republic of Cyprus and stop obstructing Cypriot efforts in the field of energy,” said Stefanos Stefanou, the Cypriot government spokesman.

Cyprus is represented in the EU by its internationally-recognised Greek Cypriot government.

Turkish Prime Minister Tayyip Erdogan said last week Ankara was ready to deploy its navy across the Mediterranean in a dispute with Israel over an Israeli sea blockade of Gaza.

Cyprus falls under the radar of the warning since it coincides with Cypriot drilling southeast of the island, a right Turkey contests, and possible cooperation with Israel, whose rights to offshore reserves has also been questioned by Ankara.

Turkey, the only country to recognise a Turkish Cypriot breakaway state in north Cyprus, says any hydrocarbon reserves do not only belong to Greek Cypriots, but also to Turkish Cypriots.

Turkish Cypriots have not been part of any Cypriot government since 1963, when there was a constitutional breakdown just three years after independence from Britain.

The row could complicate peace talks launched between the Greek and Turkish Cypriot sides in 2008, while the drilling coincides with a major push from the United Nations to resolve the Cyprus conflict by mid-2012.

Timing of the drilling itself, however, is unrelated to the Cyprus talks and stipulated in contractual obligations between Cyprus and Noble , the U.S. company poised to launch an exploratory drill in one offshore sector southeast of Cyprus around the beginning of October.

Cypriot President Demetris Christofias on Tuesday denounced what he said were Turkish threats and said the island would press ahead with drilling as its sovereign right.

Noble reported a massive gas discovery off Israel, and close to the Cypriot field, last year.

Original Article

Offshore Vessel Operators Suffer As Gulf Oil Output Sags

Susan Buchanan
Sunday, September 11, 2011

File Marine Management, LLC managing member Cliffe Laborde (left), with Peter Laborde

Marine Management, LLC managing member Cliffe Laborde (left), with Peter Laborde

As seen in the August edition of MarineNews, Susan Buchanan updates readers on the GOM oil production situation.

BP’s gushing well was capped more than a year ago but life is hardly back to normal in the U.S. Gulf–where rigs and vessels remain underutilized. At least ten rigs have moved overseas since last summer. Gulf oil production is below pre-spill levels and won’t recover anytime soon, analysts say. Issuance of drilling permits picked up this spring as operators agreed to use oil-containment systems but permitting lags earlier rates.

Paul Candies, president and CEO of Otto Candies, LLC, in Des Allemands, La., said offshore activity has increased recently, and “we expect to see a slow trend toward more drilling “ But the marine industry shouldn’t get lulled into a false sense of security. “We need to continue to push for more permitting of rigs and simplification of that process,” he said. Candies gave a positive report about his company, saying “all of our platform supply vessels are committed at present for extended periods. We have three inspection, maintenance and repair vessels on long-term commitments, and should have a fourth IMR vessel committed by year end.” Otto Candies is a marine transportation and offshore services company.

At Laborde Marine Management, LLC, in New Orleans, managing member Cliffe Laborde said “I think the worst is over, but we’re a long way from getting back to where we were shortly before the Macondo spill.” Laborde Marine, with operations in Morgan City, La., services the deep and shallow water drilling industry.

  • Gulf Assets Move Overseas

Laborde provided some recent history, and explained how promising times in the Gulf had turned sour. “In early 2010, as the economy emerged from a two-year recession, the Gulf energy industry was beginning to bloom,” he said. “Utilization rates for deepwater support vessels were high, and charter rates were rising again. The outlook was very good, but then came the spill and the market has languished since.”

Laborde continued, saying “many deepwater vessels and rigs have moved out of the GOM to foreign areas, and many vessels and rigs that stayed in the Gulf are idle now, waiting on BOEMRE to issue new permits.” The granting of new drill permits has been “alarmingly anemic,” he added.

Rigs are underutilized in the Gulf this summer. The fleet utilization rate for all 52, offshore Gulf platforms was 40.4% on July 22, less than half the worldwide usage rate for platforms, according to ODS-Petrodata, Inc. Utilization of mobile rigs in the Gulf stood at 53.7% on July 22.

Meanwhile, other drilling regions in the world are closer to full capacity. In Europe and the Mediterranean, 96.3% of all platform rigs and 87.7% of mobile rigs were in use in late July. Oil and marine companies can’t afford to keep assets in waters where they’re not needed. Since the start of the deepwater moratorium in May 2010, at least ten rigs have left the Gulf of Mexico, and headed to Angola, Egypt, Congo, Nigeria, French Guiana, Liberia, Brazil and Vietnam. One of those rigs returned to the Gulf in March, however, and another is slated to come back this fall.

  • Shallow Water Activity Could Slow Further At Late Year

In Morgan City, La., Dave Barousse, business development director at Fleet Operators, Inc., said “in the shelf market, or non-deep water at depths of 1,000 feet and less, we have not seen an increase in business because of the end of the moratorium. However, business has been steady as a result of the normal construction and maintenance work offshore that generally takes place during the summer months.” But, he said, activity is considerably slower than before the deepwater moratorium.” Fleet Operators owns and charters supply vessels for the offshore oil and gas industry. And Barousse said “we’re preparing for things to slow down tremendously once winter weather is upon us. The outlook is not very positive at the moment, and will be even worse by the end of the year.”

  • Gulf Oil Output Projected To Decline This Year and Next

Crude oil production from the federal Gulf of Mexico is expected to shrink from 1.64 million barrels per day in 2010 to 1.49 million bpd this year and 1.38 million bpd in 2012, according to the U.S. Energy Information Administration‘s short-term energy outlook, released in July. Gulf output should drop by 150,000 barrels a day this year and another 110,000 bpd in 2012.

The EIA said this year’s decline stems from lower production in existing fields, last year’s drilling moratorium and a subsequent delay in issuing new drilling permits. Even before the BP spill and the drilling ban, the EIA expected Gulf oil output to fall this year.

  • Issuance of Drilling Permits Lags Pre-Moratorium Pace

Jim Adams, president and chief executive of Offshore Marine Service Association, an industry group in Harahan, La., said the Administration’s approval rate for exploration and development plans is down 85% from pre-moratorium levels, and the number of drilling permits covered by exploration and development plans is off nearly 65%. He cited a study called “Restarting the Engine–Securing American Jobs, Investment and Energy Security,” released by IHS CERA and IHS Global Insight in late July.

Adams said “no industry can operate with that kind of shutdown.” He said the Obama Administration is sending rigs, boats and jobs overseas in an indefensible policy. OMSA represents more than 250 member companies, including about 100 firms that own and operate marine-service vessels. “The offshore marine industry remains in a state of crisis, almost as if the drilling moratorium was never lifted, and the only relief from excess capacity is overseas opportunities,” Adams said. “The Administration has strangled offshore drilling, and until that changes, we can’t look for better times in the marine industry.”

Adams said Washington has choked the Gulf shallow sector though it never had any significant spills. “There’s no reason that shallow water permits shouldn’t be 100% of what they were in the spring of last year, but we’re not even close,” he said. “The Administration isn’t interested in shallow-water or deepwater exploration.”
OMSA sent a letter to President Obama in February complaining about suspended offshore drilling and its impact on marine industry jobs. “We never heard back from the Administration and that’s because they know we’re right,” Adams said. According to OMSA, more than 50,000 wells have been safely drilled in the Gulf of Mexico over the past fifty years.

  • Problems with Rig Permit Numbers

Adams said “BOEMRE numbers on Gulf drilling permits are completely misleading. We need to know how many wells are brand new that will lead to exploration and how many wells are being re-permitted from last year.” Someone looking at BOEMRE’s website might think that new wells are keeping pace with pre-moratorium levels, but they aren’t, he said. He added that oil and marine industries need to be able to compare how many exploratory wells are permitted. “It takes an average seven permits for a well to start producing,” he noted. In March, Senator David Vitter (R-La.) also sent a letter to U.S/ Interior Dept. Secretary Ken Salazar and BOEMRE director Michael Bromwich, complaining about inaccurate, federal information on Gulf drilling permits.

In their July study, IHS CERA and IHS Global Insight said an analysis of BOEMRE data provided several findings. “The current pace of plan and permit approvals is significantly below historical norms and indicates that the process is not working smoothly,” researchers said. And “the growing backlog of plans awaiting approval indicates that the industry remains ready to invest as quickly as it is permitted to do so.”

  • Rigs and Vessels Adopt Oil Containment Systems

One way to get your vessel hired in the Gulf is to outfit it with spill-response equipment. After BP’s accident, BOEMRE issued new regulations requiring that rig operators be able to respond to subsea leaks and surface spills. In late July of this year, two Hornbeck Offshore Services vessels were added to the fleet of ships that can respond to a Gulf accident, the Marine Spill Response Corp. said. MSRC is a non-profit company that was established in 1990. Hornbeck’s HOS Centerline and HOS Strongline are vessels with oil-skimming systems, ocean boom, support boats and navigational systems that can support skimming at night and in stormy weather.

Hornbeck, based in Covington, La., in late May posted its first quarterly loss in over six years, but said it was diversifying by moving vessels into foreign markets. This summer, BOEMRE director Bromwich said his agency will issue more safety measures for Gulf rigs soon. At the fifth, annual World National Oil Companies Congress in the U.K. in late June, he said “offshore drilling in the U.S. and around the world will never be the same as it was a year ago. Changes that we have put in place will endure because they were urgent, necessary and appropriate.” More regulations will be issued, but not at the frantic pace of the past year, he said.

  • Report Delayed On Who’s To Blame for Spill

In late July, a U.S. team examining the causes of the BP spill delayed the release of a final report as it continued weighing evidence. BOEMRE and the U.S. Coast Guard were expected to issue results of a joint investigation on July 27 but said they needed more time. The Gulf marine industry wants additional rigs to start drilling soon. Laborde said “the oil companies, the rig operators and the energy-service companies are all anxious and ready to get back to work. This would create jobs, improve the economy, increase government revenues through royalty income and taxes, and enhance our national security by lessening dependence on foreign oil.” Where the Gulf oil and marine industries go from here is up to decision makers in Washington, he said.

Original Article

Japan hopes to buy LNG from U.S. by 2015

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Wed Sep 14, 2011 10:43am GMT

* Japan demand for LNG to stay strong after Fukushima crisis

* Japan LNG imports rise to record in August

* Japan eyes initial annual imports of 2-3 mln tonnes/yr-Nikkei

TOKYO, Sept 14 (Reuters) – Japan hopes to start buying liquefied natural gas from the United States after a project there starts exporting LNG in 2015, as the country looks to secure a steady supply amid growing demand for the fuel, a trade ministry official said on Wednesday.

Japan’s demand for natural gas is expected to rise for years to come, with its LNG imports climbing at a record pace this year as utilities ramp up gas-fired generation to offset a drop in nuclear utilisation following the Fukushima crisis.

Seishu Makino, a senior vice trade minister, met with U.S. Energy Secretary Steven Chu on Tuesday and requested approval for imports by Japanese firms.

“Japan conveyed the expectation that exports of LNG from the United States to Japan can contribute to a stable supply, to which the U.S. expressed a certain understanding,” the official told reporters.

The official said one project, the Sabine Pass terminal, has won approval to export LNG and is expected to start production and exports in 2015. Two other projects are now seeking approval. One of them is the Freeport LNG receiving and regasification terminal, in which Japan’s No. 2 natural gas distributor Osaka Gas Co has a stake.

The official declined to give an outlook for how much Japan LNG would like to import from the U.S.

The Nikkei business daily reported on Wednesday that Japanese power and gas utilities would initially import 2 million to 3 million tonnes of LNG a year, while the trade ministry estimates U.S. shipments could eventually make up 10 percent of Japan’s LNG imports.

Gas extracted from shale rock formations will be liquefied in Texas and Louisiana. The LNG will then be shipped to Japan via the Panama Canal, the Nikkei said.

Some Japanese companies have expressed hopes for U.S. exports of LNG.

Osaka Gas sees the United States as a promising shale gas exporter.

“Japan can be a destination when an expansion of the Panama Canal in 2014 allows large LNG carriers to get through the canal,” Kenji Kawamoto, an executive officer in charge of overseas business development at Osaka Gas, told Reuters last week.

Sumitomo Corp , Japan’s third-largest trading firm, is eyeing more upstream investment opportunities in U.S. shale gas and is looking to pick up shale oil assets there, as it sees those markets growing, a senior official told Reuters in July.

The Sumitomo official said obstacles to exporting U.S. shale gas, such as U.S. export regulations and the cost of establishing facilities to liquefy gas for export, could be reduced as some U.S. LNG import facilities are looking to become export facilities to sell surplus gas supplies.

Mounting public concerns over nuclear safety after the Fukushima Daiichi radiation crisis have made it difficult since the March 11 earthquake to restart reactors once they shut for routine maintenance, forcing utilities to tap fossil fuels to make up for lost nuclear power generation.

Japan’s 10 regional power firms used a record 4.81 million tonnes of liquefied natural gas in August to help offset a record low nuclear utilisation rate.

LNG imports this year are set to jump 12.2 percent to 78.6 million tonnes, exceeding the record of 70 million tonnes in 2010.

Japan’s top three sources of LNG imports are Malaysia, Australia and Indonesia, although it recently resumed imports of LNG from Norway for the first time since 2008.

© Thomson Reuters 2011 All rights reserved

Original Article

Canada: Encana Optimistic About LNG Exports

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Encana Corp. foresees a “renaissance” in natural gas prices once terminals begin to pop up along the West Coast to export the fuel to energy-hungry Asian markets, but others addressing an energy conference on Tuesday weren’t quite so enthusiastic.

We think that the prices are going to stay robust in Asia. You look today in Japan, it’s still $13 US (per 1,000 cubic feet) over there,” Mike Graham, who heads up Encana’s Canadian division, told the Peters & Co. event.

In three to five years, when LNG really starts to pick up in North America, I think you’ll see another renaissance in natural gas prices.”

The huge supplies of gas flowing out of shales throughout North America have been landlocked for some time, resulting in a major supply glut that has kept prices in the anemic $4 range US.

One of the ways Encana Canada’s largest gas producer, seeks to remedy the situation is to tap into Asian markets. It, along with U.S. partners Apache Corp. and EOG Resources Inc. are planning to build a liquefied natural gas terminal in Kitimat, B.C.

There, gas piped in from northeastern British Columbia will be converted into a liquid in extremely cold temperatures. In a liquid state, the liquefied gas, or LNG, can then be loaded onto specialized tankers and sent overseas.

China is going to consume just about all the natural gas that the world can give them. They’ve only got maybe (one billion cubic feet per day) of LNG now, but they’re looking to put in 10 and even grow from there,” said Graham.

I think it’s going to be very robust. I think it’s going to have a tendency to pull oil prices down, and have a tendency to pull natural gas prices up. It does look quite likely that maybe a few years outbound, I think the forward curve will start to reflect LNG over the next couple of years and things will get a bit more robust soon.”

John Langille, vice-chairman of Canadian Natural Resources Ltd. (said he’s not quite so gung-ho.

I’m not quite as bullish, I don’t think, as some of my peer group here in terms of what time-frame,” he said.

Canadian Natural has a large land position in northeastern B.C.’s shales, but has been focusing most of its attention on developing oil- properties in Western Canada and abroad. It has signalled no interest so far in jumping aboard the LNG bandwagon, though Langille said eventually the gas will have to find its way out of North America.

And that will happen, but it’s a five-year scenario before that happens,” he said.

John Dielwart, chief executive officer of Arc Resources Ltd. said he sees prices recovering, but to a somewhat underwhelming extent.

Where we thought we might get back to $6, $7, maybe $8 gas a couple of years ago, now we’re saying $6 will be a pretty good price,” he said.

So I think the level at which gas prices might recover, I would say, has been tempered in many of our views. But the ability to stay where we are now for an extended period of time, year after year after year, I just don’t think that’s on the table.”

But Dielwart said he’s optimistic about demand growth. In Arc’s own backyard — Alberta — more and more power plants are making the switch from carbon-spewing coal to natural gas.

An in terms of LNG, Asian countries are most interested in gas from B.C. because the travel distance across the Pacific is so much shorter than from the Middle East, for example.

We certainly haven’t done any joint ventures, but we certainly talked to a lot of parties who are coming through Calgary. I would say the traffic has increased in the post-Fukushima world,” said Dielwart, referring to the March disaster at the Fukushima Dai-ichi nuclear power plant in Japan.

I think it’s only going to become a growing and growing story and LNG will be going to Asia out of northeast B.C. in the not too distant future.

Original Article

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