Chevron starts production at GORGON (Australia) #nlpoli

SAN RAMON, Calif.--(Chevron via BUSINESS WIRE)--Mar. 7, 2016-- Chevron Corporation (NYSE: CVX) today announced it has started producing liquefied natural gas (LNG) and condensate at the Gorgon Project on Barrow Island off the northwest coast of Western Australia. The first LNG cargo is expected to be shipped next week.

This Smart News Release features multimedia. View the full release here:http://www.businesswire.com/news/home/20160307006452/en/

Chevron has started producing liquefied natural gas (LNG) at the Gorgon Project off the northwest coast of Western Australia. The company is poised to be one of the world's largest LNG suppliers by 2020. (Photo: Busines Wire)

"We expect legacy assets such as Gorgon will drive long-term growth and create shareholder value for decades to come," said Chairman and CEO John Watson. "The long-term fundamentals for LNG are attractive, particularly in the Asia-Pacific region, and this is a significant milestone for all involved."

Chevron is positioned to become a major LNG supplier by 2020. In particular, Chevron's Australian projects are well located to meet growing demand for energy in the Asia-Pacific region and more than 80 percent of Chevron's Australian subsidiaries' equity LNG from the Gorgon and Wheatstone projects is covered by sales and purchase agreements and heads of agreements with customers in the region.

"We congratulate the Gorgon workforce on this achievement," Watson continued. "This is the result of the collaboration of hundreds of suppliers and contractors and many tens of thousands of people across the world during the project design and construction phases."

The Gorgon Project is supplied from the Gorgon and Jansz-Io gas fields, located within the Greater Gorgon area, between 80 miles (130 km) and 136 miles (220 km) off the northwest coast of Western Australia. It includes a 15.6 MTPA LNG plant on Barrow Island, a carbon dioxide injection project and a domestic gas plant with the capacity to supply 300 terajoules of gas per day to Western Australia.

The Chevron-operated Gorgon Project is a joint venture between the Australian subsidiaries of Chevron (47.3 percent), ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent).

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More gas offshore #nlpoli

In early October, the Canada-Newfoundland and Labrador Offshore Petroleum Board issued two new significant discovery licenses to Suncor and Statoil, partners in Ballicaters.

On November 18, CNLOPB updated its offshore resource estimates to include the estimated 1.1 trillion cubic feet of natural in the Ballicaters SDLs.

That makes it the third largest gas field in the Jeanne d’Arc Basin after Hibernia (3.1 TCF) and White Rose (1.98 TCF)

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Time to re-think dam costs #nlpoli #nspoli

They call it Site C.

No, it isn’t a sequel to Jurassic Park or The Lost World.

Site C is a 900 megawatt hydroelectric dam project in British Columbia that BC Hydro originally estimated would cost $6.0 billion. The provincial government shielded the project from scrutiny by the provincial utilities regulator.

Sounds familiar, doesn’t it?

Ground Control to Major Tom #nlpoli

New Democratic Party leader Lorraine Michael asked natural resources minister Tom Marshall in the House of Assembly on Monday about Husky’s plans for natural gas development offshore Newfoundland and Labrador.

The story appeared in upstreamonline.com on May 3 and SRBP told you about it the same day.

Here’s what Marshall said about the article:

I have not had the opportunity to read the particular article that which she is referring to, but I would also be happy to have a discussion with the company.

Husky sizing up natural gas offshore Newfoundland and Labrador #nlpoli

Husky Energy is sizing up the potential of developing natural gas offshore Newfoundland and Labrador within the next decade, according to the leading petroleum industry news source upstreamonline.com.

First exports could begin in 2025, if enough resources can be certified, according to upstream. The likely export destination would be western Europe, a market very close to Newfoundland and Labrador and where prices are considerably stronger than they are in North America.

upstream’s story notes that the provincial government “quashed” any idea of using local natural gas in place of Muskrat falls, but reports that since then the “the idea of LNG exports appears to now have more traction, suggested one source…”.  upstream reported that “Husky is said to be taking a fresh look at known and potential gas resources to see if their scale would justify, technically and commercially, building a liquefaction plant.”

upstream reports that Husky commissioned a report from IntecSea to explore potential development of the 4.2 trillion cubic feet of natural gas offshore Labrador. 

Industry sources suggested a potential timeline towards first LNG exports could see pre-front-end engineering and design studies taking place in 2016-2017.

Front-end engineering and design would take place through to 2019 in advance of a firm decision, according to upstream.

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Cabot Martin’s paper on Natural Gas #nlpoli

Few people have the depth of experience in the province’s energy policy and history than does Cabot Martin.

From the mind-1970s until the early 1990s Martin was a senior advisor to the provincial government.  He was part of the team that negotiated the 1985 Atlantic Accord and negotiated the Hibernia agreement.  Since leaving government Martin has continued to be heavily involved in the province’s oil and gas industry.

Martin released commentary on Friday on the provincial government’s recent paper that dismissed natural gas as a viable alternative to Muskrat Falls.  For those who want to go back a bit, Martin also delivered a presentation to the public utilities board. 

It got some media coverage – CBC, the Telegram, NTV, and VOCM – but no one linked to the actual paper Martin wrote. The four reports are an interesting study in contrasts in and of themselves.

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Muskrat Three-some #nlpoli

Here are some treats to keep you up with the latest developments on the Muskrat falls front.

For starters, CBC’s Anthony Germain interviewed Tom Adams on Thursday about Adams’ contention that the Muskrat Falls project will add a significant debt load on the province.  It’s the third audio file from the top on that linked page, incidentally. 

How’s $12,000 per person for a significant debt load?

Adams points out that the industry standard way of figuring out costs for electricity projects makes Muskrat Falls hideously expensive.  Nalcor’s estimate, incidentally, is that the cost using the industry-standard means puts Muskrat falls at a cost of at least 21 cents per kilowatt hour.  When your humble e-scribbler and others said Muskrat would double the price of electricity for consumers, we were wrong.  it would actually triple it or worse.

Because Muskrat Falls is so hideously expensive, Nalcor Energy and its whole-owned subsidiary - the Government of Newfoundland and Labrador - plan to use a costing method that transfers the costs and the huge risks for the project into the future.  That makes it appear cheaper at the front but ensures that consumers get it in the end.

Clever, eh?

Adams’ comments are based on a post he made on March 21.

A couple of days later, Adams posted a link to slides from David Vardy’s presentation to the Rotary Club of St. John’s. That’s your second treat.

Most of this is stuff you may have heard before.  One of the things you might want to pick out, though, is a point Vardy makes at the bottom of slide 18:

Access to financing will depend on the form of the loan guarantee.

Federal officials have talked about delivering their loan guarantee in a number of forms depending on what works best for them.  Provincial officials haven’t really talked about this because it is a very delicate issue.  How the feds deliver their commitment will affect the cost of the project significantly.

It can also determine whether or not the provincial government can raise the cash they will need for this very expensive project that has no apparent chance of ever making a nickel from export sales.  Potential investors are looking at this project like hawks. They aren’t going to be fooled by Twittered bullshit about a 15% cost over-run and revenue streams that make it wonderful and viable.

Financing is the key to this project.  Note Vardy’s point.  You might also want to go back and check two old posts from this corner:  one from December 2010 and another from February 2011.

Your third treat is the presentation by Dr. Stephen Bruneau (March 28) on the potential for natural gas as a way to produce electricity in the province.  David Vardy noted this one as well as the availability of Churchill Falls power in 2041, incidentally.

Bruneau walked through the entire issue, including availability and potential costs. The slides are here in pdf.

He also looks at the risk of a pipeline rupture.  Interestingly enough, the proponents of the Muskrat project are grasping at that one to try and fight off the threat to their dream posed by natural gas. 

Bruneau estimates that the fuel costs for a Holyrood-sized gas plant would be one quarter of the cost of Holyrood.  That’s based on an assumption that we cost the natural gas at current American market prices.  The overall construction cost is in the neighbourhood of your humble e-scribbler’s estimates of under $2.0 billion.  Bruneau estimates construction would be two years or so.

One of the things that opponents of low cost electricity forget is that you actually need a mix of generation types to deliver a stable supply of electricity.  Natural gas would be the logical compliment to the existing hydro-electric generation on the island.

And, for those folks, that’s a significant issue.  They love Muskrat and criticise natural gas because it isn’t green enough.  What they fail to admit is that their plan for Muskrat includes more thermal generation from oil than the island current has.  The Green Fallacy is just another example of how Muskrat proponents have to cut corners on the facts in order to push their project along.

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Countering Nalcor Negativity #nlpoli

In a speech to the St. John’s board of trade this week, Nalcor chief executive Ed Martin dissed natural gas as a possible alternative to his expensive Muskrat Falls scheme.

According to the Telegram’s Wednesday edition – not online  - Martin told the business audience that a 2001 study said there wasn’t enough demand on the island to justify a pipeline.

Sort of. 

The 2001 study was premised on gas as a commercial development.  As such, the study anticipated that any development would be by one of the existing oil companies.  

They never considered that the provincial government would have cash enough to build a plant on its own, obtain the gas to develop it and charge the domestic market for whatever gas they used.

That’s basically what Nalcor is doing with Muskrat Falls.  At a cost of 21 cents per kilowatt hour, Muskrat Falls isn’t economically feasible.  The local market simply couldn’t take a new source of electricity that had a wholesale cost for electricity twice the existing retail cost of electricity in the market. The only way they can make Muskrat Falls work at all is through a complex series of deals and arrangements among interrelated companies that are all part of Nalcor and the provincial government.

So if Ed Martin wanted to be straight with his audience, he would have to compare apples to apples.  And on that basis, natural gas is a lot cheaper than Muskrat Falls.

Plus, if Martin had wanted to give a full explanation using past studies, he’d have noted a 2005 study that put a price tag on development.  Take the two together and you get a different picture from the one Martin  - selectively – painted.

Second, according to the Telly, Martin told the audience that the oil companies had first dibs on the gas and they were re-injecting it to help oil production.

Again, Martin knows that he only gave his audience a fraction of the full story.  White Rose has gas available today.  They aren’t using it all to produce oil.

But here’s the really important part:  it’s our gas.  The provincial government can claim any quantity of gas it wants for payment of royalty in-kind. 

Martin concluded, as the Telly reports, by insisting he and the gang at Nalcor weren’t dissing gas because they wanted to build a dam.  They were pushing the dam because it was the right decision.

Two things come readily to mind.  First of all, if that was so, Martin wouldn’t have to say it.  The fact he has to insist that Nalcor isn’t biased suggests that he and his company and the other Muskrat Falls proponents have an enormous credibility problem.

And, second of all, they have a credibility problem because none of the project’s proponents can present a simple, concise and truthful account of why Muskrat Falls is better than the alternatives.  Ed Martin’s presentation - with the same omissions and selective use of information we’ve seen from people like Wade Locke  - couldn’t have made that any plainer.

After all, Ed Martin’s lengthy speech about natural gas isn’t what his vice president told the joint environmental review panel.  As SRBP noted last year that “Nalcor dismissed natural gas as ‘purely hypothetical’ since the major oil companies have not identified a ‘viable business case’ (p. 20).  Nalcor hadn’t considered natural gas at all.

They didn’t study it.

All this other stuff that Martin told the board of trade about natural gas? Well Nalcor  started saying that only after people like your humble e-scribbler started pointing out that natural gas actually was viable and cheaper than the big dam in Labrador.

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Natural gas and electricity #nlpoli

Cabot Martin knows what he is talking about.  His speech to the St. John’s Rotary Club on Thursday opened a great many eyes to the potential for natural gas as a means to produce electricity locally.  By extension, martin also got at a key aspect of why the Muskrat Falls proposal is just wrong.

For an account of the speech check the Telegram.

“Nalcor has not conducted due diligence in its examination of this option, the White Rose option,” he said. “They can wave their options all they want, but they can’t produce one single study by a competent engineering firm to focus on this option. And White Rose gas happens to be probably the most viable long-term energy resource that we have in this province.”

For more on Martin’s background material, check his website;  muskratinfo.ca.

Meanwhile, in the same Telegram article,  Paul Barnes of the petroleum producers association says that the natural gas is being used to help produce oil. 

That’s true, but as Barnes knows, the White Rose operators are looking to get rid of some of their gas. They don’t need all the gas for oil production.  He also knows that the province can take the gas today and compensate the operators for it, regardless of the price.  Or the province can take it as part of their royalty.

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Ridiculous is all the rage #nlpoli #cdnpoli

Fresh from her triumphant speech about co-operation and consultation as the way to develop the north, the potential for developing uranium in Labrador and  - of course – the glories to come from Muskrat Falls, Premier Kathy Dunderdale is off to Atlanta as part of an Atlantic provinces’ trade mission.

Regular readers will recall then-business minister Paul Oram’s insightful interview on Newfoundland and Labrador history during one of his trips to Georgia.

Yes, friends, this is not the first time people from this province have gone off to the southern United States to see if we could increase trade with the Americans.  It has been a popular destination.  Danny Williams took one of his last over-seas trips to Mississippi as part of one of the trade junkets.

As you can see from that post on Williams’ trip, the Americans are looking for people to come to their states, invest money and start creating jobs for their people. There could be no better time to talk to them about investing in our province and creating jobs here.

Obviously.

And if you wanted to find some place to sell stuff we make then surely there can be no better time to do that than when our largest trading partner  - the United States – is struggling to come out of a recession. 

Again, a bit obvious, but apparently not quite so obvious to some people.

In a province where even the finance minister said the economy was fragile,  the provincial government can’t quite seem to get the concept that looking for new markets might be a good idea.

Other people certainly get the point.  Prime Minister Stephen Harper has been talking about expanding trade with Asia and Europe.  In British Columbia, they’ve got a new natural gas strategy  - h/t to David Campbell in New Brunswick – that talks about developing natural gas as an export to places like Asia.

Meanwhile, in Newfoundland and Labrador, there’s no serious interest in finding new markets for stuff. A couple of years ago, the current provincial government refused to take part in trade talks with the Europeans.  The locals were more interested in the seal hunt than in creating jobs. Just last year, one local politician said it would be like doing a “back-room deal with a group of serial rapists”.

You can see the level they are working at.

As for natural gas, developing it for any practical use at all is about as popular an idea in government circles as a one cheek sneak sliding across the pews on Sunday morning.

Any talk of it as a means of generating electricity gets them raising the completely absurd idea of buying liquefied gas from somewhere else and importing. 

Too expensive, the government’s favourite economist clucked, to be a viable alternative to the favourite economist’s preferred project. He didn’t really even need to hold a match to his straw-man to watch it burst into flames.

And the local natural gas? 

Well, it’s just not possible.

Because, well, it just isn’t.

Never mind that you wouldn’t have to liquefy the stuff to bring it ashore.

Never mind that there is enough of it out there to power a 500 megawatt plant all day long, every day, all year long for a century.

Never mind that they could get it from one field today where it is getting costly to re-inject the gas they get during oil production. 

Never mind that the provincial government need take only as much gas as they needed to run a gas-to-electricity plant. 

Never mind they could put a price on it and take the gas as a partial credit for offshore royalties.

Never mind there’s likely tons of it onshore Newfoundland.  The same people pushing the very expensive electricity scheme actually found gas in 2011 in not one but two wells drilled at Parsons Pond. Nalcor shut down drilling on a proposed third well because they found gas, not the oil the company hoped for.  And, as CBC reported:

Vice-president Jim Keating said there is no need for a third well as it would likely produce the same result.

Same result being gas.

Gas?

What could they possibly do with gas?

Sheesh!  <insert eye rolling>

The government crowd want to go with their Labrador project and that is really the end of it as far as they are concern.

It is a green project, you see.

Just don’t bother to notice that their “green” scheme includes building – wait for it – more oil-fired generation than the current plant they want to replace with the hydro one.

Not gas.

Oil.

Yes, their argument is ridiculous, but then again, it’s no more ridiculous than giving up a market worth billions for new products in order to posture about a product almost no one wants any more.

Or heading off to the sort-of recessionary United States for the umpteenth year in a row to talk trade with people we already trade enough with.

Ridiculous, you see, is all the rage.

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Classical gas #nlpoli

Former Conservative policy advisor Cabot Martin knows a thing or two about energy.  The guy worked in the energy department in the 1970s and was involved in every major policy development in oil gas and electricity in the province for over a decade.

He’s got an op-ed piece in the Saturday Telegram that questions the wisdom of developing Muskrat Falls when the American markets are being shifted by cheap natural gas. Unfortunately, the thing isn’t online. The closest you can get is a reference in the editorial.

The editorial discusses the potential use of natural gas to replace Holyrood instead of Muskrat Falls.  The Telegram editorial and the Navigant report, released this week on behalf of Nalcor, mention a 2001 natural gas study done for the provincial government.

The gang at Navigant missed another important report study on the feasibility of bringing natural gas ashore from the Jeanne d’Arc basin.

2005.

Done for NOIA, the offshore oil and gas association by Dr. Stephen Bruneau.

Regular readers of these scribbles will recall this point from a post in July that discussed the natural gas option:

A 2005 discussion paper prepared for NOIA by Dr. Stephen Bruneau looked at six options for getting additional electricity for the island grid. Bruneau concluded that development of only 60% of the known gas reserves at Hibernia, White Rose and Terra Nova would give enough natural gas to power a Holyrood size generating plant at full capacity, 365 days a year for over a century.  That would displace 500,000 tons of greenhouse gases each year.

Bruneau estimated the cost of a pipeline to bring the gas ashore to be $300 million. Another $400 million would build a natural gas generating plant, with another $112.5 million needed to build a short on-land pipeline and build natural gas handling facilities at sea.  Total cost would be less than $1.0 billion.

Nalcor didn’t study natural gas because it didn’t want to study it. 

They didn’t want to study it because their political masters had already directed them to pursue any development of the Lower Churchill.  Nothing else entered their collective skull.

The Conservatives and Nalcor started the most recent LC project in…wait for it…2005, the same year Bruneau did his work for NOIA.

Even as Danny Williams was launching down the road to the Muskrat mess, others were talking sensibly about alternatives to meet the province’s needs.

Three things to take away from this:

1. Nalcor did not make a decision on how best to meet consumer electricity needs in the province at the lowest cost for those consumers.  They followed political orders to build the Lower Churchill.  Period. Everything else got tossed in the bin.
2. Natural gas is a cheaper, viable alternative to Muskrat both for domestic needs, for electricity export and for industrial diversification.  Bruneau’s 2005 study put the cost at about a $1.0 billion.  Cabot Martin estimates $3.0 billion.  That’s still half the official estimate for Muskrat Falls. And frankly, since the official estimate of $6.2 billion is about 40% below the real cost they should be starting with, natural gas only gets better the more you know about Muskrat.*
3. People with way more experience in provincial energy policy that Kathy Dunderdale, Danny Williams and Ed Martin combined all think Muskrat is a big mistake.  Cabot Martin is just the latest.  Who would you trust:  the people who delivered the province’s oil industry or the gang that expropriated an environmental cesspool of a paper mill, by accident?

Think about it.

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*edit for clarity of reference to 40% and Muskrat.

Nalcor ignores natural gas, local studies back cheaper alternative to Muskrat Falls project

The provincial government’s energy corporation didn’t study natural gas as an alternative to using Muskrat Falls to replace the Holyrood generating plant according to the company’s final written submission to the environmental panel reviewing the project.

Nalcor dismissed natural gas as “purely hypothetical” since the major oil companies have not identified a “viable business case” (p. 20). The company cited testimony given to the environmental panel to justify its decision.

But information given to the panel in testimony at a hearing into the project in St. John’s on August 4 didn’t come from the major offshore companies.  Some of the information came as hearsay comments from two private consultants interested in developing a natural gas storage facility near Stephenville and from Nalcor’s own vice president Gilbert Bennett.

Neither Bennett nor the consultants could cite specific information.  Neither told the panel, either,  that assessing development of offshore natural gas is hampered because the Government of Newfoundland and Labrador still hasn’t developed a natural gas royalty regime, despite commitments to do so in 1997 and again in the provincial energy plan issued in 2007.

That’s the same plan that committed the provincial government to developing the Lower Churchill.

The other source Nalcor cited to dismiss natural gas is testimony by NOIA president Bob Cadigan at the same April hearing. 

The panel was interested in the prospect of using natural gas from the offshore just for Holyrood and not for export. And when asked by the environmental assessment panel for specifics on a natural gas development, Cadigan didn’t have any information about the viability of natural gas as a replacement for Muskrat Falls of any sort. 

Instead, he relied on the project proponents and their assessments:

And in terms of that feasibility,  I think -- you know, I believe that the province and Nalcor have looked at a global -- from a global  perspective or high level at the opportunities available, and I would be surprised if it was an economically viable source to replace electric 18 generation from Holyrood [p. 141]

NOIA is comprised of supply and service companies for which Muskrat Falls represents a very lucrative business opportunity.

What none of the project boosters talked about were studies done within the past decade on offshore gas development.

A 2005 discussion paper prepared for NOIA by Dr. Stephen Bruneau looked at six options for getting additional electricity for the island grid. Bruneau concluded that development of only 60% of the known gas reserves at Hibernia, White Rose and Terra Nova would give enough natural gas to power a Holyrood size generating plant at full capacity, 365 days a year for over a century.  That would displace 500,000 tons of greenhouse gases each year.

Bruneau estimated the cost of a pipeline to bring the gas ashore to be $300 million. Another $400 million would build a natural gas generating plant, with another $112.5 million needed to build a short on-land pipeline and build natural gas handling facilities at sea.  Total cost would be less than $1.0 billion.

Nalcor estimates the Muskrat Falls project will cost  at least $6.2 billion, with the resulting electricity costs at least 14.3 cents per kilowatt hour.

In contrast, Bruneau estimated the cost of electricity from a Holyrood natural gas plant at five cents a kilowatt hour.  Surplus gas could be converted to liquid natural gas and stored, according to Bruneau, or exported to the American market:

Associated gas transferred to the Island via pipeline is economical and is a wise choice for Newfoundland and Labrador energy strategy. It
will result in lower electricity prices, improved environmental stewardship, will attract major industry including LNG export opportunities, and, is economical to begin IMMEDIATELY.

Bruneau’s conclusions are supported by a 2001 study for the provincial energy department that looked at the feasibility of piping natural gas and gas liquids from the offshore using a pipeline. That study concluded, among other things, that the resources examined by the study could be developed economically even in a low price environment.

 

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Making the Most of Our Energy Resources, Part II – Oil and Gas in the Future

Without new oil and gas discoveries, the Newfoundland and Labrador petroleum industry will dry up within a couple of decades.  There hasn’t been a significant discovery in the offshore since the 1980s, with the exception of one find in the Orphan Basin.

The problem isn’t a lack of oil or gas.  The geological estimates back up the notion there is plenty more to find. The problem is no one is looking for it hard enough to find it. 

To give you a sense of how low exploration levels are now compared to a couple of decades ago, take a look at this slide.  It’s taken from Wade Locke’s recent presentation for the Harris Centre. 

Low exploration levels is one of the most important problems facing the oil and gas industry.  It’s not a new problem.  It’s not the only problem.  There are others, all of which centre on the basic challenge of how we can make the most of our oil and gas resources now and in the future.

Here are some basic ideas that can help us to get there.

For starters, Newfoundland and Labrador has to be an attractive place for investment, exploration and development. Oil and gas is a highly competitive industry, especially in the exploration sector.  There are only so many exploration dollars to go around.  There are only so many rigs to go around and there are plenty of places in the world where companies can find oil and gas, develop it, get it to market and make a lot of money.

Sending delegation after delegation to oil shows in places like Houston doesn’t produce a single new exploration well. What the local oil and gas industry needs is a stable, predictable environment.  That is something they haven’t had for a while.

One of the easiest things for the provincial government to do is set an offshore oil royalty regime and a gas royalty regime.  The provincial government had an oil royalty regime but the 2007 energy “plan”  to replace it with something else.  Not surprisingly for the current administration, there is no sign of a new oil royalty regime four years after they promised it.

Ditto a natural gas royalty regime. The current administration promised one in 2007 but they still haven’t delivered.  In fact, the provincial government has been working on development of a gas royalty regime for the past 14 years and still they haven’t managed to produce anything but a discussion that went nowhere.

With the royalty regime set, there’s no need for the provincial government to hold up any developments while it “negotiates” with a developer.  That’s the sort of thing one might expect in a banana republic.  It isn’t what happens in mature economies.

In the same way, the provincial government should set – or allow the offshore regulatory board to set – basic rules for local benefits.

The current administration held up the Hebron development and in the end settled for a royalty regime only marginally better than the generic regime. But any gains on so-called super royalties were offset by give-aways on the front end of the royalty structure and on local benefits in the form of research and development spending commitments.

Standard royalty and benefits regimes that work across a variety of price ranges and that work fairly for the resource owner  - i.e. taxpayers - and the developer will promote stable economic development.

The provincial and federal government should also implement a policy of merit-based appointments to the offshore regulatory board.  The Canada-Newfoundland and Labrador Offshore Regulatory Board is one of the most important agencies in the province. The most recent fiasco with efforts to stuff a former political staffer into a job she was unqualified for highlight the potential damage that politicians can do to an important official body.  At the very least, the provincial government should advertise for applicants for board appointments based on well publicized criteria. Board appointees should serve for fixed terms and each appointment should come with a publicly available expiry date. The offshore board is no place for political hacks and cronies.

While the offshore oil and gas industry is well developed, the oil and gas industry that lies exclusively within provincial jurisdiction is not.  As a way of encouraging development of a well-managed industry within the borders of the province, the Government of Newfoundland and Labrador should develop a regulatory board to administer lands, manage reservoirs, serve as a repository for information on oil and gas and generally serve as the focus of industry regulation from the three mile limit inward. 

The new oil and gas regulator should complement the work of the offshore board.  Naturally, the new board will assume some of the roles assigned to the old provincial petroleum directorate as well as ones that have grown up within the oil and gas division of the natural resources department. The new onshore regulatory board should also administer new, standard royalty and benefit regimes for any future developments.

Other elements of the 15 ideas (and more) also will apply to the oil industry.  For example, breaking up the energy company and either privatizing it or forcing it to function like other companies would break its strangle-hold on the local business environment.  This would inevitably allow for new life and energy in a sector that is rapidly becoming stagnant.

Without new life in the province’s energy industry,  the future looks bleak.  Staying on the current path is not a practical option. 

These are a few ideas to stimulate life and growth and to create a future for the province and its people that works.

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How west coast Newfoundland could beat the Lower Churchill

Take a look around the energy markets right at the moment and anyone with half a clue will be wondering why Kathy Dunderdale and her provincial government are hell-bent on building Muskrat Falls.

The dam is the smaller of two always looked on before now as being the Lower Churchill project and it was always the optional dam.  The Gull Island power station was always considered the most cost effective.  The 2,000 or so megawatts from Gull Island would give enough cash in power sales to justify the cost of building it.

But the generator is only part of the equation.  Look at a globe and see where Gull Island and Muskrat are.

Then look at likely markets.

The Lower Churchill is pretty much as far as you can get from markets other than Quebec without leaving the continent.

As a result, the power lines to get from the dam to the market will be long.

And those long lines will be costly.

In fact, the power lines to get Muskrat Falls power to Newfoundland  - where we have cheaper alternatives the province’s energy company ignores in order to justify a financial pig of a project – and to Nova Scotia is actually more expensive than building the dam and the generators themselves at Muskrat Falls.

Try stringing the power to New York and you get power that is hideously overpriced for any market.

This is something Kathy Dunderdale has already acknowledged, by the way.

But even if all that were not true, any development on the Lower Churchill is going to run headlong into the competition.

Not Hydro-Quebec and its 8,000 megawatts of wind and new hydro, although that is a big enough competitor.

Natural gas.

The price is cheap.

There’s lots of it.

Natural gas is a relatively cheap and relatively clean way to make electricity from fossil fuels.

There are about 10 trillion cubic feet of natural gas offshore Newfoundland and Labrador.  Recent discoveries in Quebec and prospects along the Gulf of St. Lawrence basin will only add more natural gas to the pool that’s available in North America. The Quebec provincial government is already looking to attract international investment in natural gas, mining and other development.

West coast Newfoundland could wind up being a major source of natural gas within the next decade if prospects along the eastern edge of the Gulf and onshore pan out.

But for that to happen, the provincial government might well have to abandon its obsession with incredibly expensive power from Muskrat Falls.

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NB to seek offshore accord with feds

Via Canada East:

New Brunswick needs a federal-provincial agreement on offshore oil and gas exploration, along the lines of those signed by Quebec, Nova Scotia and Newfoundland and Labrador. And it must finalize such an agreement soon, before the east coast oil-and-gas rush moves into adjacent waters.

The focus is on natural gas.

Natural gas is pretty cheap these days but it can be used to generate electricity more cleanly than with other fossil fuels.

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Of pipelines and such

1.  Chevron and its Caspian pipeline partners are going to drop $5.4 billion to double the capacity of a pipeline bringing crude out of its Caspian Sea production operation. The line will be able to move 1.4 million barrels of oil per day when the project is finished.

2.  The federal government will drop as much as $18 million into a $24 million natural gas pipeline project between Vallee Jonction and Thetford Mines Quebec.

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Corridor hits big gas

The company looking to explore the Old Harry oil prospect in the Gulf of St. Lawrence has another discovery on its hands.

According to CBC, Corridor Resources president Norm Miller told a Halifax audience Tuesday that Corridor and its partner Apache found a significant deposit of natural gas in Sussex County New Brunswick.

The gas find came in a hole originally drilled and abandoned 11 years ago.  Miller said that new technology allowed Corridor to find gas in a shale bed where it previously missed it. The Chronicle Herald reports the find is the largest shale gas deposit in North America. One independent estimate projects as much as 67 trillion cubic feet of natural gas could be found in that area of New Brunswick.

The find is also related to Corridor’s ongoing exploration for oil in New Brunswick. [map]

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Obscuring the next frontier

Offshore gas development is the next frontier, according to what natural resources minister Kathy Dunderdale told delegates to the NOIA conference this week.

The Labrador land sale last year garnered some strong interest, as it turned out and that was, at the time rightly heralded as a strong indication natural gas could be the next major offshore play.

One of the companies that has moved in is Repsol:

Repsol is also a majority partner in the Canaport liquefied natural gas (LNG) facility in Saint John, N.B., and the plant will be operational in a matter of days.

"We're looking for supply for that facility," said [Repisol vice-president Denis]Marcoux.

If gas is the next frontier, there are two large obstacles that have to be overcome.  Neither is the technical issue of how to exploit the gas.

One huge problem is the lack of a natural gas royalty regime.  The provincial government started looking at one in the late 1990s.  The current administration inherited their work, produced a draft version that wound up in the energy plan in 2007 and that’s the last it’s been heard of.

Word is the operators had problems with it, but that’s pretty normal for these sorts of things.

In the meantime, given that government can apparently only handle one major issue at a time, odds are good the thing has been languishing, waiting for first Hebron and then Hibernia South to get finished.

That’s despite the Premier’s assurance last year both would be done by the end of 2008.  As it turned out, Hibernia South took another year just to get to MOU and then will take the better part of another year still to get the formal agreements ready.

Your serial government continues to function just at it has since the beginning.

No royalty regime means that even if a company was interested in developing an existing find, they have no way of knowing what the costs are. That level of uncertainty makes companies with the cash to invest leery of starting something.

That’s something that can’t be easily dismissed. Having a royalty regime made it possible for the companies to start thinking hard about Hebron a decade before the deal was done and that was at a time when oil prices weren’t forecast to 50 bucks a barrel.

Heck, some companies haven’t been willing to commit to drilling on gas prospects because they simply can’t forecast the development costs even in a preliminary fashion.  They may bang some seismic in the meantime but no one is poking exploration holes and without those holes, nothing is really moving anywhere.

The other obstacle is the provincial government’s attitude. 

Under Williams Mod 1, there could be no development without tons of add-ons. He said in 2005 that he didn’t want to see gas shipped down the coast in some “God-damn boat.”

That’s pretty much what Repsol has in mind and that would definitely bring their LNG tankers up on the rocks that were sticking pretty high out of the water in 2005.

Those rocks might still be sticking out of the water or the tide might have risen.  Right now, the policy fog is obscuring natural gas as the next frontier offshore Newfoundland and Labrador.

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Gas facility joints list of energy projects in NL on hold

CBC news is reporting on Friday that Newfoundland LNG has shelved plans for a natural gas transhipment facility at Grassy Point, Newfoundland pending improvements in world natural gas and capital markets.

There’s no other reporting of the decision nor does the company have anything on its website about the project since it received environmental approval last August.

Construction had been expected to start this summer, according to CBC.

The company was confident the project would start construction in early 2007 however there were reasons to doubt project’s future 2008, as Bondpapers noted in April, August and October.

This is the cancellation of the third major project for northern Placentia Bay.  A proposal to build a second refinery collapsed in 2008 and earlier this year, owners of the Come by Chance oil refinery announced that expansion plans for that facility were on hold indefinitely.

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Conoco hints all not well in local oil patch

ConocoPhillips is working to counteract the impression left in a National Post story Friday that it was unhappy with the provincial government's equity demand for offshore oil and gas projects.

The Post reported that the company was having a hard time justifying an exploration program in the Laurentian sub-basin off the south coast of Newfoundland, based on the equity demand:

Kevin Meyers, president of ConocoPhillips' Canadian subsidiary, said yesterday one of the well's challenges is that the new regime involves the province taking an equity stake if the well produces a discovery, but not sharing in the cost of exploration, which could add up to hundreds of millions of dollars.

"That makes it a much more tolerable risk scenario for them - if you find something and it's economic, then they participate," Mr. Meyers said in an interview.

"But it does add an extra burden on the people who have to carry the exploration cost, so they are essentially carrying that ownership, and so that is one of the challenges in the regime."

As the Telegram reports on Saturday, the company issued a terse statement late Friday afternoon. The statement - issued by the vice-president of corporate communication said, in full:

"ConocoPhillips Canada continues to be interested in its deep water exploration project off the southern coast of Newfoundland and Labrador.

"This is a high-risk, high-cost project located in a harsh environment, and thus has considerable technical and economic challenges.

"We have been working with the province to progress the project and to gain better understanding of the recently released energy plan, and we appreciate the government's willingness in doing so.

"The implication portrayed in (Friday's) National Post article is that ConocoPhillips is challenging the province and the premier and that is simply not the case.

"ConocoPhillips looks forward to continuing to work with the province in order to test this unexplored region."

Go read the Post story again.

There's no implication that the company is challenging the provincial government. The operations vice president pointed to the obvious concern the company shares with others interested in further exploration. Sure there are projects underway and the province has acquired small shares of projects that have been already developed or where the so-called "equity" stake can be calculated and the financial implications controlled.

It's very different for exploration where there is more risk than guaranteed return. Exploration is the key to the long-term future of the province's oil and gas industry.

Drilling in deep water is costly. The provincial government's position is that it will assume no risk for the cost of exploration. If the wells are dry, the company or companies eat the cost fully. If the wells produce, the provincial government wants a slice of the gold medal, but no share of the pain incurred to get to the podium.

Kevin Meyers also made public what has been known in the oil patch for some time: the companies still don't have clarity on the financial implications of the province's energy plan and that is affecting decisions on exploration. Uncertainty or shifting provincial demands may also be affecting conclusion of the Hebron deal.

The energy plan - announced as part of last fall's election campaign after a decade of development by the provincial government - eliminated the existing generic oil royalty regime entirely promising that a new one would be developed at some undefined point in the future. Meanwhile, a draft gas royalty regime was unveiled, but it is still at the draft stage. A version shared with the oil companies before the plan was released was reportedly criticised sharply, in private. That's why the energy plan contained a "draft" and not a final royalty regime.

As such, companies interested in exploration suddenly found themselves with less certainty about the future than greater certainty. Meyer's comments contradicted the political spin from the provincial government that the energy plan was completed and had restored "clarity" to the ofshore's fiscal issues.

Companies like ConocoPhilips - which has potential for natural gas in it's south coast licenses - have to justify exploration costs without knowing what the overall financial implications might be resulting from a discovery. That's a difficult exercise where exploration costs are escalating anyway, outside the added costs of working in deep water.

A well drilled in the Orphan Basin last year cost a reported US$200 million, double the cost of a typical well offshore Newfoundland. Changes in the strength of the Canadian dollar also effectively increased the cost of drilling offshore by removing the dollar's discount bonus.

The companies appear to have been trying to keep their dissatisfaction quiet in the hopes that the problems could be solved more effectively behind closed doors. Meyer's remarks undermined the media blackout, hence the quick reaction by the corporate communicators to slap a happy face seal on further comment.

If the Premier responds at all and does so calmly, then the whole thing will blow over and the problems can be sorted out.

If he's having an off day and vents a little spleen, the whole offshore mess - currently contained - could spill on the streets of St. John's like a political Exxon Valdez.

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