Headlamp – Free money and an LNG supply crunch.

It’s Almost Free Money… The Alaska Legislature is considering a proposal to borrow up to $1 billion from global markets to cover a debt it owes to oil and gas companies. Gov. Bill Walker’s administration said the borrowing could be a way to reduce that deficit at the expense of some longer-term risk, the Juneau Empire reported. Revenue commissioner Sheldon Fisher and tax division director Ken Alper presented the plan on Wednesday to the Senate Resources Committee. “The large, overarching goal of this is to provide additional stimulus into the economy,” Fisher said. The state promised billions of dollars in tax credits to smaller oil and gas companies between 2003 and 2017. But when petroleum prices plunged, the state could no longer afford the program. The state has been paying only the minimum amount on what it owes for the past several years, as was required by state law. But as of Dec. 31, the state owes $806 million in credits. If estimates hold true, the debt will be closer to $1 billion once expected applications are filed this year. Under the proposal, the state would borrow money to pay the credits. In order to receive that money immediately — instead of years down the line — oil companies would agree to be paid less than what they’re owed, as much as 10 percent under some circumstances. That cut would compensate for the fact that the state would have to pay interest on the money it borrowed. “It’s almost free money, if you will, to be able to accelerate the payment into the current time period,” Fisher said. “So far, I have not met anyone who does not want to participate.” Fisher said many companies have taken out loans against their expected credits and are in desperate need of cash.

LNG supply crunch in the 2020’s? Shell thinks its possible. Tens of billions of dollars of new investment is needed in liquefied natural gas projects to avoid a supply crunch in the 2020s, Royal Dutch Shell has warned. The global market is still absorbing supplies from a wave of LNG megaprojects built in Australia over recent years, as well as the emergence of the US as a net gas exporter for the first time in more than half a century. But Shell, one of the world’s largest suppliers of LNG, said renewed investment was needed to meet surging demand from China and other developing countries. Steve Hill, head of Shell’s gas trading and marketing business, said the LNG market was absorbing “quite comfortably” an unprecedented increase in supplies from new projects such Chevron’s Gorgon and Wheatstone developments in Australia. Shell, Chevron and other big LNG producers such as Total and ExxonMobil have put the brake on further investment because of concern that the Australian projects, together with rising US gas exports, would lead to a supply gulling prices have fallen sharply since 2014 in parallel with oil but both markets have staged a partial recovery over the past year and Mr. Hill indicated that Shell was beginning to refocus on the case for renewed expansion.

First Reads:

Legislature considers borrowing $1 billion to pay oil debt
AP News, February 26, 2018

Shell warns of future LNG supply crunch
Financial Times, February 26, 2018