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Archive for the ‘energy policy’ Category

Bye bye Beaufort. So many memories😢

Posted in Alaska, energy policy, tagged , , , , , , , , on March 15, 2023| Leave a Comment »

The shrinking of the OCS oil and gas program continues. In an attempt to placate opponents of the Willow project, the President has removed the entire Beaufort Sea from oil and gas leasing consideration. Unsurprisingly, the opponents of Willow are no less irate.

Under the authority granted to me in section 12(a) of the Outer Continental Shelf Lands Act, 43 U.S.C. 1341(a), I hereby withdraw from disposition by oil or gas leasing for a time period without specific expiration the areas designated by the Bureau of Ocean Energy Management as the Beaufort Planning Area of the Outer Continental Shelf that have not previously been withdrawn.  

White House directive

The 5 Hilcorp leases identified above (Northstar and Liberty projects) are all that remains of the once promising Beaufort Sea planning area.
The Kulluk, pictured above, was a unique conical shaped and ice strengthened drilling vessel that operated in the US and Canadian Beaufort from 1983-1993.
BP’s Mukluk well being drilled from an artificial island in the US Beaufort Sea in 1983. The $120 million exploratory well was the most expensive in history, but did not find commercial quantities of hydrocarbons.

Historical background

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WP: “Why Big Oil is less worried about Biden phasing out fossil fuels”

Posted in climate, energy policy, Offshore Energy - General, tagged , , on March 11, 2023| Leave a Comment »

HOUSTON — Oil and gas industry leaders say they’ve seen a big shift in tone from the Biden administration over the past year, helping to smooth over one of the president’s rockiest relationships.

Washington Post

Perhaps the Washington Post reporter is correct, but the “big shift in tone” is not apparent in the offshore sector. The only lease sales have been mandated by Congress, the 5 year plan is still 9 months from completion, the lease sale terms have been less than favorable, and language in the draft 5 year plan does in fact express the intent to phase out oil and gas.

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Rystad Energy: Offshore is back!

Posted in energy policy, Gulf of Mexico, Guyana, Norway, Offshore Energy - General, UK, tagged , , , , , , on March 10, 2023| Leave a Comment »

The offshore oil and gas (O&G) sector is set for the highest growth in a decade in the next two years, with $214 billion of new project investments lined up. Rystad Energy research shows that annual greenfield capital expenditure (capex) broke the $100 billion threshold in 2022 and will break it again in 2023 – the first breach for two straight years since 2012 and 2013.

Offshore activity is expected to account for 68% of all sanctioned conventional hydrocarbons in 2023 and 2024, up from 40% between 2015-2018.

Rystad

Comments:

  • Middle East investment continues to be strong
  • Good for South America thanks to Brazil (16 new FPSOs by the end of the decade) and the Guyana success story.
  • Strong forecast for Norway and the UK boosts Europe.
  • North America could do far better with less obstructive access policies.

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Senator Manchin on the delayed 5 Year Leasing Plan

Posted in climate, energy policy, Offshore Energy - General, tagged , , , on March 9, 2023| Leave a Comment »

Washington, DC — Today, U.S. Senator Joe Manchin (D-WV), Chairman of the Senate Energy and Natural Resources Committee, released the following statement on the Department of the Interior’s (DOI) unprecedented delay in releasing a five-year leasing plan. 

“Monday night, the Department of the Interior made it painfully clear – again – that they are putting their radical climate agenda ahead of our nation’s energy security, and they are willing to go to great lengths to do it. The earliest that Interior will release a legally required program for 2023-2028 offshore oil and gas leasing will be the end of this year. That’s 18 months late. This is the first time in our nation’s history that we haven’t had a 5-year leasing program released before the old plan expired. Every other Administration, Democrat and Republican, has managed to follow the law in a timely fashion.

“Let me be clear – this is not optional. The Outer Continental Shelf Lands Act mandates that the Secretary of the Interior “shall prepare” this program to “best meet national energy needs.”

“What is even more terrifying is that on top of this disturbing timeline, Interior refuses to confirm if they intend to actually include any lease sales in the final plan, which is an issue I sounded the alarm about when Secretary Haaland appeared before the Senate Energy and Natural Resource Committee on May 19, 2022. I will remind the Administration that the Inflation Reduction Act also prevents them from issuing any leases for renewables, like offshore wind or onshore solar unless there are first reasonable lease sales for oil and gas that actually result in leases being awarded. And I will hold their feet to the fire on this.” 

Senator Manchin

Plain English; no need for interpretation 😉

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Did the IRA’s royalty provisions and DOI lease sale decisions penalize small offshore producers?

Posted in Alaska, energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , , , , , , , , on March 9, 2023| Leave a Comment »

Senator Manchin and the Alaska delegation criticized the DOI decision memo for Sale 258. The memo implied that the highest allowable royalty rate was chosen to minimize bidder interest and limit future production. Unfortunately, the “Inflation Reduction Act,” which mandated these lease sales, was not particularly helpful in creating interest in the less attractive OCS tracts like those in the Cook Inlet and the shallower waters of the Gulf of Mexico.

Sec. 50261 of the IRA raised the minimum allowable royalty rate from 12 1/2% to 16 2/3%, while capping the maximum rate at 18 3/4%. This provision favors deepwater operators, typically majors and large independents, whose royalty rates were capped at 18 3/4%, the same rate as for previous OCS sales.

Conversely, the IRA royalty provisions penalize the smaller companies and gleaners who are critical to sustaining shallow water (shelf) operations, including environmentally favorable nonassociated (gas-well) natural gas production, by raising the minimum royalty rate to 16 2/3%. DOI exacerbated IRA’s impact by electing to charge the highest allowable royalty rate for Cook Inlet and GoM shelf leases. The net result was a 50% royalty rate increase from prior sales (12.5 to 18.75%).

The table below illustrates the royalty rate implications of the IRA language and the DOI decisions.

AreaSaleDate% royalty: <200m water depth% royalty: >200m water depth
Cook Inlet2446/21/201712.512.5
GoM25611/18/202012.518.75
GoM25711/17/202112.518.75
Cook Inlet25812/30/202218.7518.75
GoM2593/29/202318.7518.75

Notes:

  • The base primary term for GoM shelf leases is only 5 years vs. 10 years for leases in .>800 m of water.
  • In lease year 8 and beyond the rental rates are nearly double for shelf leases vs. deepwater leases ($40/ac vs. $22/ac).
  • While deepwater development typically requires more time, the higher rental penalty for delayed shelf production (which must be approved by BSEE) is not warranted. $40/acre or $240,000 per year (plus inspection and permitting fees) is a high cost for a marginal shelf lease.
  • Cook Inlet Sale 244 drew 14 high bids totaling more than $3 million. Sale 258 drew only 1 bid of $64,000. While many factors influence lease sale participation, the 50% increase in royalty rate certainly made the Cook Inlet leases less attractive.
  • Other than the increased royalty rate, the terms for both Cook Inlet sales were essentially the same. The primary lease term was 10 years and the minimum bonus bid was $25/hectare for both sales. The rental rate was increased by only $3/hectare ($13 to $16).

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The other national debt: 355 million barrels

Posted in energy policy, Offshore Energy - General, tagged , , , on March 8, 2023| Leave a Comment »

That is the amount of oil the US government has “borrowed” from the Strategic Petroleum Reserve without replacing. At $80/bbl, that’s ~$28 billion worth of oil. Not refilling the SPR exposes the US to much greater costs, in terms of economic and national security risks. Those who were around during the 1970’s certainly remember the embargoes and the resulting disruptions that led to the establishment of the SPR.

The SPR has a fill rate of only 685,000 bopd, so a complete refill would require 518 days, which would have to be spread over years because of supply, operational, maintenance, and price considerations. The promised purchase of 3 million bbls in February never occurred, and we are now told that DOE “would like to start buying within the next year, depending on the window of opportunity.” This is not particularly encouraging, especially given that the mandatory sale of another 26 million bbls is upcoming this spring. So it looks like the SPR may be down another 20+ million barrels heading into 2024, an election year. Good luck making significant purchases then.

This is the hole we are in as a result of non-emergency SPR sales for price moderation purposes. Meanwhile, Congress has proposed the following legislation:

The last bill is interesting, but has little chance of passing and would be difficult to implement given other legislative, judicial, and administrative constraints on leasing and production. Having a plan is one thing; implementing it is quite something else.

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Cook Inlet (Sale 258) Decision Memo is raising eyebrows

Posted in Alaska, energy policy, Offshore Energy - General, tagged , , , , , , on March 6, 2023| Leave a Comment »

An internal memo from the U.S. Interior Department suggesting that the agency set the highest possible royalty fee on potential oil and gas development before last year’s Cook Inlet lease sale is drawing blowback from the Democratic chair of the Senate Energy and Natural Resources Committee.

West Virginia Sen. Joe Manchin said in a statement he was “appalled” by the memo, which he said was leaked and prioritized a “radical climate agenda” over the energy needs of Alaskans and the U.S.

Anchorage Daily News

From the decision memo:

While a 16 ⅔ percent royalty may be more likely to facilitate expeditious and orderly development of OCS resources and potentially offer greater energy security to residents of the State of Alaska, a reasonable balancing of the environmental and economic factors for the American public favors the maximum 18 ¾ percent royalty for Cook Inlet leases.

Sale 258 Decision Memo

The lower royalty rate probably would not have made much difference in the outcome of this sale, which only drew one bid, but the attitude expressed in the decision memo is rather disappointing given the Department’s mission, as expressed in the OCS Lands Act, to make resources available for expeditious and orderly development.

What might have made the sale more attractive was royalty suspensions, Option D.5.b (below). This would have been the best means of supporting the objectives of Senator Manchin, the other authors of the congressional leasing mandate, and the State of Alaska.

Option D.5.b: Offer Royalty Suspensions
BOEM could offer royalty suspensions with the goal of making resources available for expeditious and orderly development. However, BOEM does not recommend royalty suspensions as the recommended lease term options are expected to balance the goals outlined earlier in this memo

Sale 258 Decision Memo

Those who are concerned by the Sale 258 Decision Memo should be more troubled by the Proposed 5 Year Leasing Plan, most notably this stunning sentence which justifies the minimalist plan and signals a phasing out of offshore oil and gas leasing:

“The long-term nature of OCS oil and gas development, such that production on a lease can continue for decades makes consideration of future climate pathways relevant to the Secretary’s determinations with respect to how the OCS leasing program best meets the Nation’s energy needs.“

5 Year Leasing Program, p.3

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Not just a “hunk of metal at the bottom of the sea.” Will the undamaged Nord Stream 2 pipeline be recommissioned?

Posted in accidents, energy policy, Offshore Energy - General, pipelines, Russia, tagged , on March 2, 2023| 3 Comments »

Whoever blew up the Nord Stream pipelines was not entirely successful in that one of the Nord Stream 2 lines was apparently undamaged. What is next for that line? Will the two Nord Stream 1 and the other Nord Stream 2 pipelines be repaired?

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December 2022 GoM production data are now posted

Posted in energy policy, Gulf of Mexico, hurricanes, Offshore Energy - General, tagged , , , , , on March 1, 2023| Leave a Comment »

Comments on 2022 oil production:

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Would BOEM’s new bid adequacy procedures have changed the outcome of Sale 257 or prior lease sales?

Posted in energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , on February 28, 2023| Leave a Comment »

BOEM’s new procedures, which have been published for public comment, seem reasonable. However, it would be helpful to learn more about the testing of the new methodology. (See the quote below). Further, would the rejected Sale 257 bid have been accepted? What was the LBCI for that tract? Would any accepted Sale 257 bids have been rejected? Would the outcome of other sales have been affected?

After a 2-year comprehensive technical review of the delayed valuation methodology, BOEM intends to replace the delayed valuation methodology with a statistical lower bound confidence interval (LBCI) at a 90 percent confidence level as a decision criterion for accepting or rejecting qualified high bids on tracts offered in OCS oil and gas lease sales. Following extensive testing of the alternative approaches using both historical and current lease sale tract data and existing BOEM cash flow simulation models, BOEM determined that the LBCI approach would be the most appropriate substitute for the delayed valuation methodology. The LBCI is a statistical concept that captures the lower bound of a range of values encompassing the true unknown mean of the risked present worth of the resources at the time of the lease sale. The LBCI incorporates the uncertainty of parameters unique to the valuation of each OCS oil and gas lease sale tract. These parameters may include, but are not limited to, subsurface characterization of reservoir properties, cost and timing of the development, and projected revenues. Unlike the delayed valuation methodology, the LBCI approach would not require that BOEM estimate the time delay period between the current OCS oil and gas lease sale and the projected next lease sale. As such, BOEM finds the LBCI to be a better approach going forward.

Federal Register

Below is the flow chart for the new procedures. It’s interesting that high bids on nonviable tracts are automatically (and gratefully) accepted! 😉

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