Saturday, August 15, 2015

Russia raises tensions; Submits claim for 463,000 square miles of Arctic seabed, including North Pole

Guy Park
For Petroleum News

Eight years ago a Russian polar expedition descended through the waters of the Arctic Ocean in a Mir submarine and dropped a canister containing a Russian flag to the sea bed, 2.5 miles beneath the North Pole.

Per Stig Moller, a former foreign minister of Denmark, which has also staked a claim to the pole, told his Russian counterpart: “Just because you plant a flag there doesn’t mean you own it,” to which the Russian replied: “Just because the Americans planted a flag on the Moon. ...”

Some tended to view the incident as a stunt. Others were less nonchalant and that mood has since been reinforced by the saber-rattling Russia has since indulged in, culminating with its annexation of Crimea, the threat it has posed to the Ukraine and the Baltic states and the combat exercises it has conducted in the Arctic.

That military presence in the Arctic - which has involved 38,000 troops, 50 surface ships and submarines and 110 aircraft this summer - has included the restoration of a Soviet-era base on the New Siberian Islands, along with other military outposts in the region.

Revised submission

Any doubts about the seriousness of Russia’s activities in the region have now been put to rest, with Moscow’s unveiling earlier in August of a revised international submission that lays claim to a broad expanse of Arctic territory, including the North Pole.

The Russian foreign ministry said it is claiming control over 463,000 square miles of Arctic sea shelf extending about 350 nautical miles from the shore.

Russia, the United States, Canada, Denmark and Norway have all been trying to assert jurisdiction over parts of the Arctic, which the U.S. Geological Survey estimates has one-eighth of the world’s untapped oil and a quarter of its natural gas.

Rivalry for development of those resources - which some had once hoped would be a gentlemanly competition - has intensified as shrinking polar ice has opened up new opportunities for shipping and exploration and lowered drilling costs in the process.

Russia was first to submit its claim in 2002, but the United Nations sent that back for lack of evidence.

The resubmitted bid contains “ample scientific data collected in years of Arctic research” to support the claim, the Russian ministry said, indicating it now expects the U.N. Commission on the Limits of the Continental Shelf to start reviewing the bid this fall.

The U.N. Convention on the Law of the Sea allows all coastal nations to extend their jurisdiction beyond 200 nautical miles as long as they can prove the boundary claim is a natural extension.

The submission made by Denmark last December is seen as a test of whether Russia is willing to uphold its commitment and abide by the convention which says countries may control an area of seabed if they can show it is an extension of their continental shelf.

The key element of the counterclaims is the Lomonosov Ridge which bisects the Arctic, starting in Greenland.

Canadian claims

Canada is also developing its own plan to assert sovereignty over part of the ridge.

In late 2013, Prime Minister Stephen Harper ordered officials to rewrite Canada’s Arctic claim to include the North Pole and conduct more survey work this summer before submitting the document.

When Russia released its updated submission, its embassy in Ottawa said that Russia and Canada had previously agreed to allow the U.N. commission overseeing the issue to evaluate and rule on the quality of the hydrographic research “without prejudice to the rights of the other state.”

Rob Huebert, a political science professor and an Arctic expert at the University of Calgary, said it is now Harper’s responsibility to make clear whether his government is willing to negotiate with Russia where claims intersect.

“It is in Canada’s interest to have a safe and stable Arctic,” he told the Globe and Mail.

But he suggested Canada’s recent use of the Arctic Council as a forum to hammer Russia and President Vladimir Putin over tensions in the Ukraine might pose a challenge to serious negotiations.

However, Huebert suggested it is “inevitable” that talks will take place over the next five years, adding that the more reasonable Russia appears to be on the issue the more Canada risks being isolated, especially now that it has been chastised by the United States for making the Ukraine an issue at the Arctic Council.

Read more: http://www.petroleumnews.com/pntruncate/601707706.shtml

Walker wants 51% stake in AK LNG

Alaska Contract Staffing
By Tim Bradner
Alaska Journal of Commerce

Alaska Gov. Bill Walker talks with BP Alaska President Janet Weiss during a May 22 visit to Prudhoe Bay. Walker has briefed legislators that he wants the state to take a 51 percent ownership in the Alaska LNG Project and that he may propose a gas reserves tax as leverage against North Slope gas owners BP, ExxonMobil and ConocoPhillips.

Alaska Gov. Bill Walker talks with BP Alaska President Janet Weiss during a May 22 visit to Prudhoe Bay. Walker has briefed legislators that he wants the state to take a 51 percent ownership in the Alaska LNG Project and that he may propose a gas reserves tax as leverage against North Slope gas owners BP, ExxonMobil and ConocoPhillips.

Gov. Bill Walker is still pushing North Slope producers for a larger share of the Alaska LNG Project, and may promote a state gas reserve tax as leverage against the companies, state legislative leaders briefed recently on the governor’s plans said in interviews.

The governor’s office would not comment on the briefings.

“This is all very deliberative, so it’s too soon for us to comment,” press secretary Katie Marquette wrote in an email.

Legislators were willing to share what they’ve heard so far.

“We were told the governor desires a majority ownership in the project, at least 51 percent, and that the administration is considering the use of a gas reserves tax if one or more of the companies don’t want to play,” said Rep. Mike Hawker, an Anchorage Republican who was one of the leaders briefed.

Hawker is chairman of the Legislative Budget and Audit Committee. He and House Speaker Mike Chenault, R-Nikiski, were briefed by administration officials.

A reserves tax is a property tax on the value of natural gas reserves in the reservoir.

Hawker said his overall concern is that the governor is veering away from a partnership concept in the plan now agreed to by the producers where each owner of gas resources on the North Slope, including the state, finances and owns a share of the project equal to the gas ownership.

Under this arrangement “alignment” on commercial terms among the parties is achieved, Hawker said.

“The governor’s idea (of a larger state ownership) goes another direction, possibly dividing the parties rather than seeking alignment,” he said.

Chenault said, “I know the governor wants a bigger piece of the pie but this project is working now as it was designed,” as a partnership with the state on an equal footing with each of the three major producers.

“For years the three producers tried to figure out a way to make this work having to pay 100 percent of the costs but getting only 75 percent of the revenues,” because of the state royalty and tax share, the Speaker said.

In making the state a partner, the costs and shares of revenues were aligned, “and it made sense,” Chenault said.

On the reserves tax, Chenault said people have talked about it for years and the option for the state is always there, but now is not the time.

“We shouldn’t be threatening them now. We should be working with them,” he said.

State Sen. Anna MacKinnon, R-Eagle River, another legislative leader who was briefed, voiced similar sentiments: “If you want to be partners who work your disagreements out, you don’t hammer people,” with things like a reserves tax.

MacKinnon is co-chair of the Senate Finance Committee. MacKinnon also said her impression is that Walker may be looking to enlarge the state share, or be ready to do it, as a hedge against one of the three producers balking at the last minute on the big project, which is now estimated to cost $45 billion to $65 billion.

MacKinnon and State Sen. Cathy Giessel, R-Anchorage, who was briefed along with MacKinnon, said they are primarily concerned with how Alaska will be able to pay for an enlarged share of the project given the state’s diminished finances and large budget deficits due to a sharp drop in oil revenues.

“For the state, the financing issues with this are mind-boggling,” Giessel said, who is chair of the Senate Resources Committee.

The lawmakers were told that the governor’s plan is to finance the state share — currently 25 percent but up to 51 percent if the state achieves a majority share — with debt through project revenue bonds and with no cash equity invested by the state. If the project cost is $50 billion, the state’s financing share would range from $12.5 billion to $25 billion.

“That is certainly possible, but it could be expensive in the long run,” Hawker said. “I’d also have to be convinced that it could be done without pledging the state’s general credit as a guarantee, particularly our Permanent Fund.”

Alaska’s Permanent Fund is a state savings fund of oil revenues, and now exceeds $55 billion in value. Tapping the fund to backstop a state gas project financing would likely require a constitutional amendment.

“I don’t have a great deal of confidence in this approach,” MacKinnon said, but she is still willing to listen to ideas for creative financing, she said.

Giessel said mentions were made in the briefings of possible state partnering with just one or two companies, including Japanese firms. Walker and senior state officials recently met privately with a senior Japanese government and industry delegation in Seattle and a follow-up meeting is planned in Tokyo in mid-September when the governor is to be there for a major LNG conference.

Total debt financing would leave the state with no equity and no profits earned on an equity share, which would reduce the revenues the project might bring the state over the long term, the legislators also said in the interviews.

Walker also appears intent on not having TransCanada Corp. as its partner in the project.

“This is what we’re hearing,” Giessel said.

MacKinnon said, “The governor has been fairly clear in his public statements that he would prefer that TransCanada not be part of the project.”

Currently, TransCanada would finance and own the state’s 25 percent share of the 800-mile, 42-inch pipeline and the large Gas Treatment Plant at Prudhoe Bay, with the state signing a long-term shipping contract to transport state-owned gas through TransCanda’s capacity in the treatment plant and pipeline.

The state would directly own, and finance, its 25 percent share of the large LNG plant planned at the southern terminus of the pipeline at Nikiski, south of Anchorage. However, the state’s agreement with TransCanada ends in December unless it is extended.

If the state does not extend it, TransCanada will be reimbursed for its investments to date, which are expected to exceed $100 million.

Another change the state is seeking is to enlarge the pipe diameter from 42 inches, in the current plan, to 48 inches, the legislators were told.

In their briefing, Giessel and MacKinnon said administration officials told them producing companies might go along with this if the state were willing to pay for it. Giessel expressed concern, however, about the effect such a change could have in delaying the Federal Energy Regulatory Commission permitting now underway.

Hawker said he has been told there are no U.S. steel mills capable of rolling 48-inch high-pressure steel and only three mills with that capability worldwide. The lack of manufacturing options could raise the price, he said.

MacKinnon said if the state pays for enlarging the pipe it would own the extra capacity and would have to manage it.

“We would be responsible for finding more molecules to ship. What experience do we have in this?” she said.

Chenault said he has told the governor that legislators want a regular flow of information, “so we can see where the administration is heading. We’ve got to get our members up to speed. They (the administration) can’t just dump all this on us a few days before a special session.”

Meanwhile, a reserves tax as a lever on the producing companies would face practical obstacles and would also likely spark lawsuits. The tax is essentially a property tax and while some government jurisdictions, mostly municipalities, levy property taxes on oil and gas reserves in the ground, there are complications.

One complication on the North Slope is that a reserves tax would have to uniformly be applied to all natural gas in a field without distinguishing among lease-owners or companies. To penalize one lease-owner and not another will be complex, although it is possible that a credit against the property tax might be granted for any gas produced.

More fundamentally, because the oil and gas fluids are comingled in the reservoir it would be tricky to have only the gas taxed without also taxing the crude oil.

Also, what is being taxed is the value of the unproduced hydrocarbons, and if there are honest disagreements over a economic viability of commercial production there will be big legal fights over the in-place value of the hydrocarbons.

Finally, having one company producing gas from a reservoir and not another will be complicated under the current operating rules for the fields.

Read more: http://www.alaskajournal.com/Alaska-Journal-of-Commerce/August-Issue-3-2015/Walker-wants-51-stake-in-AK-LNG/

Susitna-Watana studies resume after spending freeze lifted

By Elwood Brehmer
Alaska Journal of Commerce

Researchers walk along the Susitna River in this 2012 Alaska Energy Authority photo. With a spending freeze lifted by Gov. Bill Walker, work is resuming on the Susitna-Watana hydroelectric project. However, the authority will need about $100 million in new funding to get through the Federal Energy Regulatory Commission licensing process and to construction.

Researchers walk along the Susitna River in this 2012 Alaska Energy Authority photo. With a spending freeze lifted by Gov. Bill Walker, work is resuming on the Susitna-Watana hydroelectric project. However, the authority will need about $100 million in new funding to get through the Federal Energy Regulatory Commission licensing process and to construction.

Work is resuming on the Susitna-Watana hydroelectric project under spending guidelines put in place by Gov. Bill Walker’s administration.

The overall cost for the proposed 705-foot dam in the upper reaches of the Susitna River has been pegged at $5.6 billion in 2014 dollars by the Alaska Energy Authority, or AEA.

AEA will need $105 million, maybe more, to get through the Federal Energy Regulatory Commission licensing process and to construction, authority Executive Director Sara Fisher-Goad said during an Aug. 6 board meeting. However, AEA only has the ability to spend the $6.6 million it has in the bank for the project through 2017.

That money should get the project to the study plan determination, at which point FERC would rule whether or not the authority has gathered sufficient relevant data to apply for a project license. The FERC license is the last and largest pre-construction hurdle.

Fisher-Goad said AEA will continue to update data with field studies as necessary to prevent work from becoming stale or outdated. National Marine Fisheries Service officials have questioned the validity of some Susitna-Watana fisheries studies.

“The longer we stretch this out, we’re losing our economy of scale to be able to have logistics support on several studies at one time,” she said. “We’re doing this in more of an incremental fashion.”

AEA has completed 14 of 58 FERC-approved studies so far, according to Dyok.

To date, the project has received $192 million in state appropriations. The Walker administration lifted an administrative order July 6 that halted spending on the dam, one of six large infrastructure projects that were put on hold in late December.

After 2017, once AEA has exhausted its funds for working towards a study plan determination, “the project will be revisited in the context of the fiscal environment and other competing major capital projects,” Office of Management and Budget Director Pat Pitney wrote in a memo to Fisher-Goad.

Mike Wood, president of the lead Susitna-Watana opposition group the Susitna River Coalition, in a July 16 release, called resuming the project a “slap in the face” to Alaskans as state leaders discuss ways to increase state revenue during a time of multi-billion dollar budget deficits.

“The proposed dam has already wasted hundreds of millions of state dollars and needs to be immediately shut down,” Wood said. “It diverts necessary funds for other, more responsible and reasonable alternative energy developments, as well as goes against Walker’s campaign promises of fiscal responsibility and fish-first policies.”

AEA has touted the dam, which would generate about 2,800 gigawatts, as a way to provide half of the Railbelt’s energy demand with clean energy at long-term stable prices.

Continuing at a slower pace to prevent unnecessary spending could end up costing the state if the dam is ultimately built, AEA Project Manager Wayne Dyok said at the AEA board meeting.

At $5.6 billion to build today, inflation on project financing could add up to $150 million to the cost each year construction is delayed, he said.

If everything goes according to the current plan, AEA will be able to submit its license application with FERC in 2019, and hopefully begin construction soon after a typical two-year review, according to Dyok. However, if AEA gets the $100 million-plus it needs to submit its application before 2017, that timeline could be accelerated by two years and potentially save the state $300 million.

The cost of financing the project could also have a direct impact on long-term electric rates.

“What you get out of a constructed hydro project is this inflation-proof aspect, but you don’t get that until it’s constructed and generating,” Fisher-Goad said.

Dyok said the dam would save Railbelt consumers an average of $224 million per year on energy costs over the first 50 years in production, a total savings of $11.2 billion over that time.

Initial electric rates from Susitna-Watana — with first power in 2029 — would be in the 13 cents per kilowatt-hour range, AEA estimates.

That price would continue to drop to an average of 6.6 cents per kilowatt-hour as about $8 billion in principal plus interest is paid off over 50 years.

By contrast, natural gas-generated electricity from the large Alaska LNG Project would be about 11 cents per kilowatt-hour in 2029 and increase to a more stable rate of about 15 cents per kilowatt-hour over several decades, according to Alaska Center for Energy and Power projections.

On the energy savings alone, Dyok said the cost-benefit ratio for the project is 2.39-to-1. When the avoided cost of building new gas-fired generating capacity, generation facility retirement, and greenhouse gas reductions are included, the ratio improves to more than 3-to-1, he said.

Roughly half of the project qualifies for a U.S. Department of Agriculture Rural Utilities Service loan, which is conservatively projected with 4 percent interest, Dyok said.

The rest of the project financing is planned as nearly $4 billion paid in state bonds at 5 percent interest over 30 years a portion of which would be refinanced at a lower rate, according to AEA officials.

Economic, study impacts

As an added bonus, Susitna-Watana would generate billions for Alaska’s economy during construction along with clean, affordable power once its turbines are turning, AEA claims.

The dam would have an economic impact of $3.4 billion and generate about 1,300 jobs each year during construction, according to a Northern Economics study commissioned by the authority.

Preconstruction study work has generated jobs, but also information that is being used by other state agencies.

“This project has advanced the state of science for a number of agencies, particularly the Alaska Department of Fish and Game through some of the salmon work,” Dyok said.

ADFG Mat-Su area sport fish biologist Richard Yanusz said in an interview that AEA’s funding for fisheries studies has provided significant benefit to the department. He said there is relatively little data on chinook salmon in the Susitna drainage, despite the popularity of the species. AEA’s studies in 2013-14 provided drainage-wide abundance estimates through radio telemetry tracking and mark-recapture efforts.

According to Yanusz, some of that information had not been gathered since the first time Susitna-Watana was proposed in the 1980s.

“It’s been a long time between those abundance estimates, so having such a basic piece of information is very helpful to management,” he said. “It is almost new information, very rare information, so just having those reference points will be helpful.”

Similar studies were done for coho salmon, the other primary sport fish in the drainage, on the main stem of the Susitna, without including the major tributaries such as the Yentna.

Dyok said the Department of Natural Resources has also found flow data helpful for other potential projects in the region.

Managing flow below the dam has been an issue of contention for those opposed to Susitna-Watana, because of the potential impacts to juvenile salmon, particularly in winter.

AEA is developing models to better project flow regimes throughout the year, but how much water is let through the dam is ultimately regulated by FERC, according to Dyok.

Average winter flow at the dam site would increase about four times and roughly be cut in half during the summer to retain water during times of lower electric demand based on early projections, he said.

Flow at the dam site currently comprises about 16 percent of the average annual water in the Susitna.

“Fisheries, recreation, and power; you need to balance all of those factors,” Dyok said.

Read more: http://www.alaskajournal.com/Alaska-Journal-of-Commerce/August-Issue-3-2015/Susitna-Watana-studies-resume-after-spending-freeze-lifted/

Sunday, August 2, 2015

Judge finds Greenpeace USA in contempt, sets escalating fines for bridge protest

By Elwood Brehmer
Alaska Journal of Commerce

Activists hang off the St. Johns Bridge to protest Shell Oil's drilling in the Arctic, in Portland, Ore., Wednesday, July 29, 2015. After the Shell-leased vessel Fennica turned away from the protesters Thursday morning, a federal judge in Alaska found Greenpeace USA in contempt of court and set fines that will begin at $2,500 per hour and escalate to $10,000 per hour if the protesters aren’t off the bridge by Sunday, Aug. 2.

Activists hang off the St. Johns Bridge to protest Shell Oil's drilling in the Arctic, in Portland, Ore., Wednesday, July 29, 2015. After the Shell-leased vessel Fennica turned away from the protesters Thursday morning, a federal judge in Alaska found Greenpeace USA in contempt of court and set fines that will begin at $2,500 per hour and escalate to $10,000 per hour if the protesters aren’t off the bridge by Sunday, Aug. 2.

Editor's note: This story has been updated to include comments from Greenpeace USA and Shell. According to the Greenpeace USA Twitter feed, the 13 support activists on the bridge have been removed by police, but the bridge danglers are still in place. Greenpeace USA wrote in its Twitter feed they would be staying "as long as possible." A live stream from Portland channel KGW at 2:45 pm Alaska time now indicates firefighters are attempting to remove the danglers. From the AP at 5 pm Alaska time: A Royal Dutch Shell icebreaker that was the target of environmental protesters is leaving Portland, Oregon, bound for an Arctic drilling operation. The Fennica headed out Thursday after authorities forced protesters in kayaks from a river and removed others dangling from a bridge.

Greenpeace USA must immediately get its activists out of the way of a vessel contracted to work in the Arctic for Shell or face fines ramping up each day until it does.

An annoyed-looking Alaska U.S. District Court Judge Sharon Gleason imposed a fine of $2,500 per hour beginning at 10 a.m. Alaska Time Thursday on Greenpeace until the 13 environmental protesters dangling from ropes below the St. Johns Bridge across the Willamette River in Portland, Ore., pull themselves onto the bridge. The fines will escalate daily until reaching $10,000 per hour if they aren’t off the bridge by 10 a.m. on Aug. 2.

Gleason also found Greenpeace in civil contempt of court for violating an injunction she issued in May that prohibits Greenpeace from impeding any vessels working on Shell’s offshore Arctic drilling.

She made her ruling at approximately 9:45 a.m. Thursday, setting the fines to begin accruing 15 minutes later and disregarding a Greenpeace request for a three-hour grace period to get the activists up from below the bridge.

Gleason said she was “unpersuaded that a grace period is warranted” before the fines take effect because there is no assurance Greenpeace would follow the latest order.

The activists can be on top of the bridge, she said, but need to be off the ropes beneath the structure.

Greenpeace immediately appealed Gleason’s decision to the 9th Circuit Court of Appeals and a hearing has been set for August.

Early Thursday before the hearing, the activists lowered themselves into the path of the icebreaker Fennica on its way from a Portland shipyard back to Alaska.

Greenpeace attorneys contended kayakers not associated with the environmental group got in the way of the vessel and the Fennica did not enter a 100-meter safety zone from the activists that would have violated the injunction.

Gleason said the evidence was “clear and convincing” that Greenpeace intended to violate the order, despite how close the Fennica actually got.

An email from the master of the ship Tommy Berg was filed with the court that stated the activists forced the Fennica to retreat.

“Please be advised that Fennica has made an attempt to sail for sea as instructed by Shell. However, the eNGO (environmental non-governmental organization) activists dangling from ropes off St. Johns Bridge clearly prevent the vessel from passing and cause a navigational hazard. We have thus decided to await further instructions,” Berg wrote. The Fennica is a 380-foot ice-management vessel. It was in Portland for repairs after it sustained a three-foot gash in its hull when it hit a shoal leaving Dutch Harbor for the Chukchi Sea July 3.

The hourly fines will increase $2,500 each day at 10 a.m. Alaska time until reaching $10,000 per hour the morning of Aug. 2, or when Greenpeace gets its employees out from under the bridge.

Shell first asked for fines of $2,500 per hour in a Wednesday hearing, which it says is equal to the contract rate it pays for the Fennica. In Thursday’s hearing the oil company’s representatives upped their request to $250,000 per day, arguing that Greenpeace uses its acts of protest as fundraising tools, which offsets smaller fines that might be levied against it.

Gleason said the progressive fines are intended to “coerce behavior that would have them leave.”

The environmental group offered its reaction to the decision in a formal statement from Greenpeace USA Executive Director Annie Leonard.

"Right now we're asking the activists what they think we should do next. As of this moment, the 26 activists will stay in place," Leonard said. "Shell is still trying to circumvent the growing global call to preserve the Arctic, and has turned to the courts for help. While we respect the courts, we also respect the increasingly urgent science that tells us Arctic oil needs to stay underground."

Shell was pleased with the outcome.

"We have consistently stated that we respect the right of individuals to protest our Arctic operations so long as they do so safely and within the boundaries of the law," wrote spokesperson Meg Baldino. "The staging of protesters in Portland was not safe nor was it lawful. Furthermore, Greenpeace demonstrated a complete lack of regard for the authority of a U.S. Federal Court. We are pleased with today’s court ruling that holds Greenpeace in contempt and prescribes fines for further non-compliance."

Gov. Bill Walker spoke with Portland Mayor Charlie Hales and Oregon Gov. Kate Brown’s chief of staff Thursday morning, according to a release from Walker’s office.

The governor urged Oregon’s leaders to stop the illegal protesting and allow Shell to conduct the activities it is permitted for.

“Alaska and the United States have the chance to be leaders in responsible offshore drilling in the Arctic,” Walker said in the release. “As our state faces a multi-billion dollar budget deficit, and an oil pipeline that is three-quarters empty, we would be foolish to turn away such significant economic opportunity. I hope that leaders from outside Alaska can understand and respect that.”

Shell’s two drilling vessels are in the Chukchi Sea and ready to drill, Shell and federal agency sources said July 29.

Shell has permission to drill “top holes,” or the upper parts of wells that do not penetrate potential oil-bearing formations, until the Fennica gets to the Arctic with the capping stack after its repairs.

Shell drills in the Chukchi Sea

Tim Bradner
Alaska Journal of Commerce

The Polar Pioneer drill rig is seen working in the Barents Sea for Statoil in this file photo. The Polar Pioneer began drilling for Shell in the Chukchi Sea on Wednesday afternoon.

The Polar Pioneer drill rig is seen working in the Barents Sea for Statoil in this file photo. The Polar Pioneer began drilling for Shell in the Chukchi Sea on Wednesday afternoon.

Shell is finally drilling in the Chukchi Sea. The semi-submersible Polar Pioneer “spudded” the Burger J well at 5 p.m. Wednesday, company spokeswoman Meg Baldino said. Meanwhile, an ice-management vessel sent to Oregon for repairs is now en route after police cleared protesters that were blocking the vessel.

“The Fennica is now safely on its way to Alaska and will join Shell’s exploration fleet in the Chukchi Sea — where the Transocean Polar Pioneer commenced initial drilling operations,” Baldino said in a statement. “We remain committed to operating safely and responsibly and adding to Shell’s long history of exploration offshore Alaska.

As the Polar Pioneer drills, Shell’s second drillship on the scene, the Noble Discoverer, is moored at the Burger V well location in the same area.

Until the Fennica arrives with a critical “capping stack” used to control an undersea blowout, The Bureau of Safety and Environmental Enforcement has given Shell permission to drill “top holes,” or the upper parts of wells that do not penetrate potential oil-bearing formations.

Shell may drill just one well at a time, although the second drillship can be kept nearby and ready to drill when the first vessel finishes a well. Federal rules prohibit simultaneous drilling by drill vessels within 15 miles, and Shell’s planned well locations, for this year, are nine miles apart.

Read more: http://www.alaskajournal.com/Alaska-Journal-of-Commerce/Breaking-News-2015/Shell-drills-in-the-Chukchi-Sea/

BP, ExxonMobil seek more Prudhoe

Tim Bradner
Alaska Journal of Commerce

BP and fellow Prudhoe Bay lease owner ExxonMobil have filed an application with the Alaska Oil and Gas Conservation Commission seeking to increase their gas offtake to supply the Alaska LNG Project. The commission will have to weigh the benefits of gas sales versus foregone oil recovery produced through reinjecting gas.

BP and fellow Prudhoe Bay lease owner ExxonMobil have filed an application with the Alaska Oil and Gas Conservation Commission seeking to increase their gas offtake to supply the Alaska LNG Project. The commission will have to weigh the benefits of gas sales versus foregone oil recovery produced through reinjecting gas.

BP and ExxonMobil, two of the three major Prudhoe Bay field owners, have applied to the Alaska Oil and Gas Conservation Commission for an increase in the allowable volume of natural gas that can be produced and sold from the North Slope field.

The AOGCC, a quasi-judicial state regulatory commission with oversight of oil and gas production practices, has set a public hearing date of Aug. 27.

In 1977, the commission set a limit on Prudhoe Bay gas offtake of 2.7 billion cubic feet of gas per day, but BP and ExxonMobil, citing new reservoir studies, have now asked for permission to increase the rate to 4.1 billion cubic feet per day to supply a planned gas pipeline and LNG export project.

By law the AOGCC is required to seek maximum recovery of hydrocarbon fluids and must ensure that too rapid a withdrawal of gas from the Prudhoe reservoir will not result in an unreasonable loss of long-term oil recovery.

Prudhoe Bay holds about 24 trillion cubic feet of natural gas in addition to about 12 billion barrels of remaining oil, although not all of the oil can be produced. Prudhoe has already produced about 12.2 billion barrels since operations began in 1977.

If the Alaska LNG Project is built, the field will supply the bulk of the gas, at least in the near term, while additional gas will come from the Point Thomson gas field 60 miles east of Prudhoe Bay. A separate application to the AOGCC for gas offtake from the Point Thomson field is expected later.

Read more: http://www.alaskajournal.com/Alaska-Journal-of-Commerce/August-Issue-1-2015/BP-ExxonMobil-seek-more-Prudhoe-gas/
ConocoPhillips, which is also a major lease owner at Prudhoe Bay, was not included in the application made by to the AOGCC by the two other companies. ConocoPhillips spokeswoman Natalie Lowman said her company has been working with BP and ExxonMobil on the offtake issue.

“We are not aware they intended to make a unilateral filing,” she said in a statement.

Lowman said ConocoPhillips will have more to say on the matter at the AOGCC hearing. BP spokeswoman Dawn Patience said her company could not comment on the matter and that there would be more discussion in the hearing in late August.

About 8 billion cubic feet of gas is now produced along with oil at Prudhoe but the majority of that injected back underground to maintain pressure in the reservoir to aid oil production.

Natural gas liquids, or NGLs, produced with the gas are also mixed with crude oil and shipped to market in the Trans-Alaska Pipeline System, while other NGLs are used to make a miscible injectant fluid that is used in Enhanced Oil Recovery on the slope.

The AOGCC’s concern is that if some of the produced gas, in this case up to half, is shipped to markets via pipeline, there will be less gas injected and less support for pressure in the reservoir. That could result in loss of oil.

In their application to the commission, BP and ExxonMobil said the loss of oil recovery would be mitigated by steps including injection of carbon dioxide in an enhanced oil recovery project.

Prudhoe Bay gas contains about 12 percent CO2, which must be extracted from gas before it can be shipped by pipeline to an LNG plant planned to be built in southern Alaska. That process will make large quantities of CO2 available on the North Slope to aid oil recovery.

In the Aug. 27 hearing, the two producers will present evidence showing that the loss of oil recovery can be minimized.

“In accordance with good oil field engineering practices, at various stages of field development the Prudhoe Bay field owners have evaluated the potential effects of Prudhoe Bay major gas sales on oil production and hydrocarbon recovery. Gas production from Prudhoe Bay (to date) has been used for extraction of miscible injectant, manufacture of natural gas liquids, pressure maintenance and enhanced oil recovery,” wrote Dave Lachance, BP’s vice president for reservoir development, in the application.

About 75 percent of the 3.5 billion cubic feet/day of gas supply needed for the Alaska LNG Project, or about 2.7 billion cubic feet/day, is expected to come from Prudhoe Bay. About 25 percent of supply for Alaska LNG will from other sources, Lachance wrote in the application. This would be mainly from Point Thomson.

About 600 million cubic feet per day will be needed to fuel field operations on the North Slope and for local gas sales to contractors, raising the average daily offtake requirement, including the fuel needs, to 3.3 billion cubic feet per day.

However, a contingency must be built in to account for potential interruptions in gas supply from other fields. To include that contingency, BP and ExxonMobil have requested authorization for up to 4.1 billion cubic feet per day to cover shortfalls if they occur, according to BP’s application.

Overall, the Alaska LNG Project will result in the production of an additional 3.8 billion barrels of “oil equivalent,” from Prudhoe Bay, the application said. Oil equivalent is a measure of production that reflects crude oil and natural gas together with the gas covered to the equivalent of liquid barrels of the same energy content as oil. One barrel of oil is equal to about 6,000 cubic feet of natural gas.

The CO2 injection will play an important part in producing oil that remains in the reservoir, according to BP’s application,

In 1979, after it was discovered, Prudhoe Bay was estimated to be able to produce about 9.6 billion barrels of about 23 billion barrels of oil in place in the reservoir rock, but the oil recovery has improved substantially due to a variety of steps including use of the existing gas production for pressure maintenance and to make the miscible injectant for enhanced oil recovery, BP said in the application.