Category Archives: Alaska
Alaska is the largest U.S. State – in fact it is larger than all but 18 countries of the world, and about 1/5 of the total land area of the 48 contiguous states.
The weekly EIA report came out today and one of the noteworthy data points was the Cushing, Oklahoma storage numbers. Already at a record, Cushing added another 1.8 million barrels to storage sending total Cushing stocks to 51.9 million barrels of oil in storage facilities at the energy hub.
There has been 6.3 million barrels of oil added to Cushing during the last 6 weeks. To put these build numbers into perspective, Cushing oil inventories stood at 28.3 million barrels for this time a year ago, which is a build of 23.6 million barrels in a year.
Seaway Pipeline Expansion
The Seaway pipeline was recently expanded to 400,000 barrels per day from 100,000 barrels per day, and many analysts have predicted that this would solve the Cushing oil glut. But it is looking more and more that what the Seaway pipeline offers is a cheaper mode of delivery out of Cushing, and the real benefit is one of logistical optionality for transportation.
Further Reading – Keystone XL Pipeline: Economics, Idealism and Politics
However, it is shaping up due to the sheer size of these build in inventories at Cushing that the Seaway pipeline is not a magic solution for the supply and demand fundamentals at play in the oil industry in the United States, there is just more US production, than there is US infrastructure in place to deal with the trending upturn in this production.
Oil is Fungible
In short, the US and global oil model isn`t set up for the United States to be producing more than 7 million barrels of oil per day. Even if the Seaway pipeline could send 4 million barrels of oil out of Cushing, it wouldn`t make a difference because Oil is fungible, so without major cuts somewhere else in the global supply chain, then you’re going to have supply andstorage builds somewhere in the supply chain.
Saudi Arabia can only cut back production so much
The Saudi`s have already cut back production to fifteen month lows, how long is that going to continue as they need oil revenue just like everyone else? So Cushing is just a reflection and end point for the delivery of increasing US production, which ultimately is building more than there is demand from refiners for producing products, even with an increase in exporting of gasoline and other petroleum products.
Cushing never was landlocked
This should have been apparent to analysts as rail has been delivering Oil to refiners during this domestic boom, and so are barges taking oil out of Cushing, so large amounts of oil are getting to refiners. Some of it before it even gets to Cushing, and some after with the Seaway pipeline, and barges out of Cushing; and with the spread in 2012 of as much as 25 dollars, there were major incentives to get US oil to refiners in a myriad of ways.
Cushing builds reflective of bigger problem
Yet we have almost doubled Cushing`s inventories in a year. This points to a much bigger problem with analysts missing entirely, thinking this was just a Cushing log jam problem. This is seeing the trees, and missing the overall forest, Cushing is just a reflection of the bigger problem, there is just too damn much oil sloshing around the world right now with nowhere to go.
Further Reading – Cushion 50 Million, Boom & Bust Cycles, U.S. Debt & Recession
You see this in stories about Nigerian crude for February delivery being unsold and stuck on cargo ships because there are no buyers with the increase in US domestic production. Iraq is producing more oil, and they need the revenue so expect more oil coming out of Iraq for the next decade with each year producing more than the previous.
The world is producing more oil than is consumed each day
The world global supply chain is producing more oil than the world needs every day, and this means storage has to build somewhere, and whether it is Cushing, or Nigeria, or China it has to be stored somewhere.
In the US, Cushing has expanded storage facilities the past couple of years, and has been a default place to send the extra oil. But even Cushing is rapidly reaching capacity limits, and even if on the margin the Seaway pipeline takes out more oil, refiners can only handle so much more before they become the bottleneck in the equation.
Further Reading – Oil and Gas Markets End 2012 With Swollen Inventory Levels
US Refineries not easy to build
Remember, refiners are not easy to build, and the US has only relatively recently ramped up domestic production, so even with substantial increases in fuel exports, there just are not enough US refineries to handle the increase in US oil production. In short, the oil model of the last decade was not set up with the US being a major producer. The US production increases is throwing the global supply models a major curve ball.
Therefore, the only way that Cushing inventories are going to go down substantially is if more US refineries are built, and that could take three to four years, if they are built at all given the regulatory and financial hurdles that have prevented progress in this area over the last decade.
The bottom line is that the Seaway pipeline is no cure for what ails Cushing inventory builds. For what ails Cushing is the fact that nobody thought about the unintended consequences of a boom in US oil production due to high prices for the past decade.
The global economy has slowed down from the peak in 2007, but prices have remained high, this resulted in increased production projects globally, and the rise in US production just sent the supply levels over the edge.
Furthermore, nobody ever planned or expected that the US would start producing with these numbers ever again. This has thrown the whole supply chain on its back, Cushing is just a reflection of this fact, there is more oil than the world needs right now, and the world definitely didn`t need an increase in US production.
Cushing builds still a problem
As a result you get Cushing, the manifestation of what happens when the unexpected happens before the oil models know what to do with the extra supply. You do not get the kind of builds at Cushing, with a new pipeline in existence for six months, a hefty spread, and rails transporting oil at unheard of levels, unless there is a much bigger problem than just increasing the Seaway pipeline by 300,000 barrels per day.
The Seaway Pipeline just steals business from Railroads & Barges
So Seaway doesn`t solve the Cushing problem as many have hoped. All Seaway does is maybe take some business from barges and railroads in the transportation of the product.
But the problem was much bigger than these people ever realized, because Cushing never represented a landlocked, logistics equation.
Cushing builds represents the fact that right now there is just too damn much oil that is being produced versus consumption needs for that oil. So it has to be stored somewhere, and Cushing is one of the places.
Too many chefs in the kitchen
The real problem is that nobody ever planned for the US to be producing 7 million barrels of oil every day and rising, there is just not enough demand in the world for this extra oil, so it has to be stored because everyone needs the money these days. And until prices drop substantially, no one is going to cut back producing this black gold.
By LISA DEMER — firstname.lastname@example.org
Royal Dutch Shell’s Kulluk drilling rig, re-secured to two ships with towlines early Monday, grounded around 9 p.m. in rocky water off the southern coast of Kodiak Island during a pounding Gulf of Alaska winter storm, according to the U.S. Coast Guard.
A command team that includes Shell briefed reporters on the disaster with the Kulluk late Monday night.
It broke loose from a Shell-contracted ship, the Aiviq, around 4:40 p.m. Monday Then around 8:15 p.m., the second tow ship, the borrowed Alert, was directed to lose its towline to avoid danger to the nine crew members aboard, according to the command team managing the crisis, which includes Shell, the Coast Guard, the state of Alaska, and contractors.
No one was hurt, the Coast Guard said.
The command team numbers about 250 people and most are now based at the Anchorage Marriott Downtown because the operation was running out of room at Shell’s headquarters in Alaska, the Midtown Frontier Building.
When the Kulluk was cut loose from its final towline, it was four miles from land toward the south end of Kodiak Island, according to a written statement sent around 8:30 p.m. The grounding is the worst development yet in a crisis that began Thursday night when the $290 million, 266-foot-diameter Kulluk first lost a towline after the mechanical failure of a shackle used to connect it to the Aiviq.
Crews struggled against worsening weather and a mobile drilling unit that was unmanned with no propulsion capability of its own. The Coast Guard evacuated the Kulluk’s 18-person crew on Saturday for their own safety as the floating rig bobbed in giant swells in the Gulf of Alaska. After that, there was no way for the Kulluk to drop anchor and avoid grounding, said Coast Guard Commander Shane Montoya.
The crew had been trying to get the Kulluk to safe harbor on Kodiak Island but the storm, with huge swells and fierce winds, proved too much, Montoya said.
In a statement issued around 6 a.m. Monday, it was being held by towlines and was about 19 miles south of Kodiak.
“The safety of personnel and the environment remain the top priority,” the command team said in the
8:30 p.m. statement, announcing that the Kulluk was again adrift. “Difficult weather conditions are anticipated to continue throughout the day. Unified Command is considering all options.”
The statement did not specify options.
“This is an evolving situation,” the statement said. “More information will be released as it becomes available.”
The National Weather Service issued a storm warning Monday for the seas around Kodiak and said the marine conditions were hazardous. The forecast was for 36 foot seas, winds topping 60 mph and rain. But the rough seas were expected to ease by Tuesday.
As of late Monday afternoon, the unified command team planned to let the vessels wait out the incoming winter storm off the southern coast of Kodiak Island rather than attempt a move to a protected harbor that would be risky in severe weather, said Coast Guard Petty Officer David Mosely.
Early Monday morning after a night adrift for the Kulluk, crews tethered it to the Shell-contracted Aiviq, a massive ship 360 feet long, as well as the Alert, a 140-foot Crowley Marine Services tug normally under contract to Alyeska Pipeline Service Co. The Alert was diverted from its work as part of Alyeska’s five-tug oil spill prevention and response fleet escorting oil tankers in Prince William Sound but the other tugs can handle the duties with no reduction in tanker traffic, Alyeska spokeswoman Michelle Egan said.
Since the crisis began Thursday, the Kulluk has lost towlines to various ships at least five times, including on Sunday when it broke free of two ships, the Aiviq and another Shell-contracted vessel, the Nanuq. The $200 million Aiviq early Friday lost power to all four engines, which then were repaired and fully restarted by Saturday. The Aiviq was specifically built for Shell’s controversial drilling operations offshore in the Alaska Arctic. It is owned by Edison Chouest of Louisiana.
On Monday, crews were able to use a grappling hook to take up the loose end of a long line that was still attached on the other end to the Kulluk. Another line had been attached as a backup and was floating on a buoy and secured at the other end to the Kulluk. That was not one of the lines that broke on Sunday, Shell spokesman Curtis Smith said.
But the Kulluk lost both lines.
Shell began exploratory drilling this fall in the Chukchi and Beaufort seas under sharp criticism from environmentalists and some Alaska Native groups. The critics say Shell is ill-prepared for challenging work in harsh conditions, and that government regulators have failed to require the latest and best technologies.
In Shell’s case, its unique oil spill containment dome was damaged during testing, and another drilling rig, the Noble Discoverer, experienced a series of problems. It dragged anchor in Dutch Harbor, suffered a small fire in its smokestack and was cited by the Coast Guard for safety and pollution control issues.
“We’ve got a pattern of failures,” said Carl Wassilie, a Yup’ik Eskimo who coordinates a grass-roots group called Alaska’s Big Village Network and helped organize a protest Monday outside the Frontier Building, Shell’s Alaska headquarters. “I’m saying no, there’s no way that I can see any feasibility of drilling in the Arctic, especially with the extreme conditions that we’re seeing, not only with Mother Nature right now but also just the technical aspects of the failures that we’re seeing with the fleet.”
Shell responded that it has backup plans that kick in when problems emerge and that the actual drilling operations this year proceeded safely.
“Flawless operations remain the goal,” Smith said earlier on Monday. “But being a responsible operator also means putting contingencies in place when operations do not go as planned. We have done that.”
That includes calling in other vessels during the Kulluk emergency, he said. Shell now has four vessels on scene, and the Coast Guard brought in a cutter, the Alex Haley, the buoy tender Spar, as well as helicopters. On Monday, the Coast Guard flew a small crew to the evacuated Kulluk to inspect the towlines but they reportedly didn’t stay on long.
The Kulluk left Dutch Harbor the afternoon of Dec. 21 under tow by the Aiviq, headed to the Seattle area for off-season maintenance. The weather forecast for the next few days was typical, even a bit tame, for winter along the Aleutian chain and into the Gulf of Alaska: Winds of 17 to 35 mph, seas of 7 to 15 feet.
“Toward Kodiak Island, there was nothing of real significance,” said Sam Albanese, a warning coordination meteorologist for the National Weather Service. “It was a pretty benign forecast.”
But by the afternoon of Dec. 25, the outlook had shifted from a prediction of more gale-force winds to a near storm at sea with winds topping 50 mph, he said.
And that’s what hit the Kulluk and the Aiviq last week.
By Saturday night, the winds were near hurricane force, the Coast Guard said.
Still, traffic along the busy shipping lanes through the Gulf of Alaska that connect Asia to North America continued during the heavy seas and storm, the Coast Guard’s Mosley said.
“We have ships coming through this area daily,” he said.
Over the past week or so, no ship captains alerted the Coast Guard that they were diverting course along the Aleutians or around Kodiak Island to avoid the rough seas take refuge in a safe harbor, he said. Ships typically keep the Coast Guard posted if they detour.
But a ship towing a heavy, conical rig like the Kulluk, with a derrick 160-feet tall, has a far more difficult task than one propelling only itself.
The Kulluk was designed for extended drilling in Arctic waters. It has an ice-reinforced, funnel-shape hull to deflect moving ice downward and break it into small pieces.
Reach Lisa Demer at email@example.com or 257-4390.
- Coast Guard: Crews Battle Fierce Storm While Assisting Disabled Aiviq and Kulluk [Incident Photos] (gcaptain.com)
- Drilling rig set to weather fierce storm in small Alaska port (fuelfix.com)
- Alert and Aiviq Regain Control of Arctic Drilling Rig Kulluk in Gulf of Alaska Storm (gcaptain.com)
- Coast Guard crews continue battling fierce storm to assist Kulluk near Kodiak, Alaska (uscgnews.com)
On October 3, 2012, at approximately 2:45PM AKDT, the Kulluk began drilling at Shell’s Sivulliq prospect. Shell has noted that the occasion is historic in that it’s the first time two rigs have been drilling simultaneously offshore Alaska in over two decades. The Noble Discoverer has been drilling at Shell’s Burger prospect in the Chukchi Sea since September.
“In the weeks ahead we look forward to operating safely and responsibly, putting Americans to work and adding to Shell’s long, successful history of drilling offshore Alaska,” said Pete Slaiby, VP Alaska.
Bought by Shell in 2005, the Kulluk was speciﬁcally designed and constructed for extended season drilling operations in Arctic waters.
- Shell starts exploratory drilling in Beaufort Sea (fuelfix.com)
- Shell begins second drilling operation in Alaska’s Arctic seas (fuelfix.com)
- Shell prepares for Beaufort Sea drilling (fuelfix.com)
Executives for ExxonMobil, ConocoPhillips, BP, and TransCanada submitted a letter to the Parnell administration describing their companies’ progress in advancing an Alaska liquefied natural gas (LNG) export project.
“I’m encouraged that the companies have made significant progress in advancing a project and an associated schedule for commercializing North Slope gas,” Governor Parnell said. “Clearly, they have fully shifted their efforts to an Alaska LNG project.”
The companies’ letter addresses a critical benchmark that Governor Parnell laid out in his January State of the State address, calling on the companies to harden the numbers on an LNG project and identify a project timeline by the end of the third quarter.
The letter also addresses an additional third-quarter benchmark that Governor Parnell laid out in his address, calling on the companies to complete their discussions with the Alaska Gasline Development Corporation (AGDC) on the potential to consolidate their work. In the letter, the companies said they have established a cooperative framework with AGDC to share information.
“I am also encouraged to see the significant work between AGDC, which is advancing an in-state gas project, and the Alaska Pipeline Project (APP), which is advancing an LNG export project. Deeper cooperation between these two state-backed efforts is strongly in the state’s interest,” Governor Parnell said.
Prior to the announcement, ExxonMobil, ConocoPhillips and BP had met two earlier benchmarks laid out in Governor Parnell’s State of the State address. On March 29, the state and the companies resolved the Point Thomson litigation. The following day, the companies announced their alignment “on a structured, stewardable and transparent approach with the aim to commercialize North Slope natural gas within the Alaska Gasline Inducement Act (AGIA) framework.”
Letter from the producers and TransCanada provide details on the team they have assembled and the team’s activities in developing a project, building on their previous work to commercialize North Slope gas. The documents include a project timeline and a cost range covering various stages in the project development schedule and work plan. The documents also provide new details regarding the components of an Alaska LNG project, including a liquefaction facility, gas production and storage, a large-diameter pipeline, and a gas treatment plant.
Over the past six months, more than 200 employees from the four companies have been working on managerial, technical, and commercial aspects during this phase of the project schedule, according to the letter.
Given the massive size of the North Slope conventional gas resource (35 trillion cubic feet of reserves and more than 200 trillion cubic feet of undiscovered, technically recoverable resources) and the scope of the project as described by the companies, an Alaska LNG project will be one of the largest in the world.
While the companies have been developing their LNG project design, the Parnell administration has undertaken significant outreach to Pacific Rim markets to highlight the comparative advantages of Alaska LNG exports, and to other key stakeholders, including U.S. government officials in charge of export licensing.
The most recent of these efforts was Governor Parnell’s trade mission in September to South Korea and Japan, where he discussed Alaska LNG exports with leading government and industry officials.
- Alaska gas line project could cost $65B or more (jsonline.com)
- Parnell in Asia, touting Alaska natural gas (juneauempire.com)
- Alaska Sees Asia Driving Annual $20 Billion Via Pipeline – Bloomberg (bloomberg.com)
- Alaska cozies to Asia for natural gas (upi.com)
GVEA announced that it has entered into a natural gas supply contract with BP Exploration (Alaska) Inc. Under the contract, the cooperative may purchase up to 23 billion cubic feet of natural gas each year for 20 years.
This positions GVEA as the aggregator, which is kind of like a wholesaler. All fuel purchases will flow through Golden Valley.
This contract benefits the Interior in many ways, including:
- It meets GVEA’s needs for electrical generation. GVEA can convert the North Pole Expansion Power Plant to burn natural gas, displacing expensive oil-fired generation.
- It allows for the expansion of a natural gas distribution infrastructure in the Interior. The high cost of space heating is crushing Interior Alaska. GVEA will be able to supply the natural gas, opening up opportunities for distribution system expansion.
“Beyond satisfying our own electrical generation needs, we recognized an opportunity to address the energy crisis facing Interior Alaska’s residents and businesses, in particular, the high cost of space heating,” said Cory Borgeson, GVEA Interim President & CEO. “BP’s willingness to work with our cooperative to address Interior Alaska’s energy crisis is appreciated and is crucial to the long-term success of our communities.”
It is difficult to determine the precise impact this natural gas contract will have on the average Interior resident’s electric bill. Savings are contingent on the price of other fuel sources, including oil. Adding natural gas to our fuel mix will help GVEA stabilize rates and provides an opportunity for decreased fuel costs.
Providing the project stays on track, natural gas is expected in the Interior by 2015.
The Alaska Pipeline Project (APP) announced that it will conduct a non-binding public solicitation of interest in securing capacity on a potential new pipeline system to transport Alaska’s North Slope gas.
The solicitation of interest will take place from August 31 through September 14, 2012.
The solicitation of interest is being conducted to identify parties potentially interested in making future capacity commitments on a pipeline system from the Alaska North Slope to a gas liquefaction (LNG) terminal at a tidewater location in south-central Alaska or to an interconnection point near the border of British Columbia and Alberta in Canada.
APP will conduct the solicitation of interest in accordance with the Alaska Gasline Inducement Act (AGIA), which requires TransCanada, as the AGIA Licensee, to assess market interest in a pipeline transportation system for Alaska North Slope gas every two years after its first open season.
APP has set a high priority on providing access opportunities for in-state natural gas to heat and power local homes, business and industry. All options being pursued under AGIA provide for a minimum of five delivery points for local natural gas connections in Alaska.
Today, the Senate has two hearings scheduled on the Law of the Sea Treaty (LOST). The Senate will have had three hearings on the LOST after today—yet, not for the purposes of educating Senators on the flaws versus the benefits of the treaty. These hearings are a pretext for a lame duck strategy to railroad the treaty through the Senate after the November election.
The first hearing today is titled “Perspectives from the U.S. Military.” Witnesses include Admiral James A. Winnefeld, Jr, Vice Chairman of the Joint Chiefs of Staff, and representatives from other government stakeholders in navigation on the high seas. The question that these witnesses can’t sufficiently answer is, “What can’t you do today, because of the LOST, that you could do if the treaty were to be ratified?” The answer is nothing.
Heritage’s Kim Holmes, former Assistant Secretary of State for International Organization Affairs, wrote for The Washington Times last year that the navigational provisions in the treaty are not necessary.
The treaty’s navigational provisions offer nothing new. Yes, the U.S. Navy says (LOST) might improve the “predictability” of these rights, but does the Navy’s access to international waters really depend upon a treaty to which we are not even a member? The last time I checked, the U.S. Navy could go anywhere it wanted in international waters. Though redundant, the navigational provisions of (LOST) are actually pretty good. That’s why President Ronald Reagan supported them. But Reagan and others objected to the unaccountable international bureaucracy created by the treaty.
The second hearing today will include former Secretary of Defense Donald Rumsfeld, Heritage Foundation expert Steve Groves, former Deputy Secretary of State John Negroponte, and former Legal Advisor at State John B. Bellinger, III. This hearing will be an excellent opportunity for the opponents of LOST to make the case that this treaty is flawed.
The bottom line is that Senator John Kerry (D–MA) has been stacking hearings in favor of proponents of LOST. The first hearing this year included Secretary of State Hillary Clinton, Secretary of Defense Leon Panetta, and General Martin Dempsey, Chairman of the Joint Chiefs of Staff.
As I wrote in an op-ed at Townhall, opponents of the treaty made a strong case against ratification.
Sen. Bob Corker (R-Tenn.) professed to be starting from a neutral position vis a vis ratification. Directing a query to Ms. Clinton, he said, “A lot of people believe that the administration…wants to use this treaty as a way to get America into a regime relating to carbon, since it has been unsuccessful doing so domestically. And I wonder if you might respond to that.” Ms. Clinton’s response? She said she has a legal analysis that knocks down that argument. But not all Americans are willing to rely on a politically driven legal memo from the Obama Administration as a guarantee that this treaty will not empower the International Sea Bed Authority to force regulations on American business. Those seeking certainty on this vital issue would rather take a pass on the treaty than take a chance on Ms. Clinton’s promises.
Senators Mike Lee (R–UT) and Jim Risch (R–ID) expressed dissatisfaction with the Administration’s alleging that opponents of the treaty were engaging in “misinformation” and “mythology.” Risch argued that “you addressed the people who oppose ratification of the treaty, and…I hope you weren’t scoffing at us.” Proponents have engaged in name calling to avoid the central issues to be considered before ratification.
These hearings are intended to show that Senate Foreign Relations Committee Chairman Kerry allowed conservatives to have their say before the lame duck strategy is implemented. The deck has been stacked, with two hearings in favor and one with a 50–50 split between proponents and opponents. Kerry used a similar strategy the last time the Senate considered the LOST.
Make no mistake; these hearings are part of the strategy of the treaty’s proponents to wait until after the election to push through LOST—in November or December of this year when the American people have no recourse against this offense against American sovereignty.
- Law of the Sea Treaty: A Tool to Combat Iran, China, and Russia? or Redistribution of wealth (mb50.wordpress.com)
- The Republicans’ secret weapon on LOST: information (humanevents.com)
- Colin Hanna: Congress needs to tell Law of the Sea Treaty to get lost (junkscience.com)
- Obama Seeks Ratification Of Power-Grabbing Law Of The Sea Treaty (mb50.wordpress.com)
The Bureau of Ocean Energy Management (BOEM) announced yesterday that it was seeking public input on issues that should be tackled by the bureau in preparing an Environmental Assessment for proposed seismic data acquisition activity in Arctic areas of the Alaska Outer Continental Shelf (OCS).
ION Geophysical Corporation has applied to conduct an exploratory 2D marine seismic survey during the fall of 2012. The application proposes conducting operations throughout much of the Beaufort Sea Planning Area, with specific transect lines and segments within the Chukchi Sea Planning Area. Data obtained during this survey would be used by geologists and geophysicists to view and interpret large-scale subsurface geologic structural features and evaluate prospects for oil and gas reserves.
The Bureau of Ocean Energy Management (BOEM), an agency under the United States Department of the Interior that manages the exploration and development of the nation’s offshore resources, has also on its website announced ION’s permit application #12-01 and the associated area coverage map. BOEM has also explained the the procedures required for submission of comments, setting the deadline for April 30, 2012. More information can be found at BOEM’s official website.
Below you can see ION’s recent video: Case Study in Challenging
Environments: The Arctic Environment
Top of the world tactics at ION. See the ION approach in action as Joe Gagliardi, Director Arctic Technology & Solutions, tackles the punishing Arctic environment. By combining the capabilities across the company, ION delivers the answers and the technology that allows operators to acquire data further north than ever before and dramatically extends the short working season.