Today’s Key Takeaways: Oil price windfall for Alaska creates debate over how best to spend the surplus. Good for AKLNG: Natural gas industry and its investors are bullish over Biden’s EU energy plan. Persistent oil demand weakness in March. Young’s house race a gauge of Murkowski’s re-election chances?
NEWS OF THE DAY:
Alaska Is Reaping The Benefits Of High Oil Prices
Tsvetana Paraskova, OilPrice.Com, March 28, 2022
- Soaring oil prices have been a boon to the state of Alaska.
- The increase in revenue has created a debate in the state over how best to spend the unexpected surplus.
- “The more money you put in the hands of people, the better they would spend it than the state would.”
Thanks to skyrocketing oil prices, Alaska is reaping billions of U.S. dollars more than expected. As crude oil surged in recent months, the state where oil revenues account for a large part of the budget, general fund revenues, and state revenue from business is now considering the best ways to spend all the windfall from oil. Just before Russia invaded Ukraine and sent oil prices surging, Alaska’s Department of Revenue started developing a monthly revenue outlook for the current and next fiscal years, to ensure that policymakers have the most accurate and up-to-date information when making decisions that impact the fiscal condition of the state.
As of mid-February, oil prices were exceeding the state’s own estimates for revenue made in the autumn of 2021 by around $10 per barrel.
At that time, however, oil prices were still in the mid-$80s to $90 a barrel. A month and a half later, crude is well above $100 per barrel, with spikes to $120 and even $130 on some days.
The soaring oil prices are a boon to the state of Alaska, which relies very much on oil revenues for its budget needs. The price of the Alaska North Slope (ANS) crude spiked from $90.56 at the beginning of February to $114.93 a barrel as of March 24.
The windfall for Alaska’s coffers has created a debate in the state over how best to spend the unexpected surplus revenue, considering the runaway inflation eating into household income and the highly unpredictable nature of oil revenues, which Alaska saw firsthand just two years ago when crude prices plummeted at the onset of the pandemic.
Alaska’s Governor Mike Dunleavy wants as much as possible of the huge oil revenues these days to go to rainy-day savings, to insulate the state budget from future oil price slumps as much as possible. Some Democrats in the Alaska legislature, however, seek to pre-fund school budgets to lock in funding while oil revenues are soaring.
Earlier this month, Governor Dunleavy said that he wants to prioritize the replenishment of the Permanent Fund Dividend (PFD) and provide immediate relief to Alaskans who are facing the highest inflation in 40 years and high fuel costs.
According to the Alaska Department of Revenue’s Spring 2022 Revenue Forecast, unexpected oil revenue to the state has created a projected $3.6 billion increase in the revenue forecast over this year and the next.
“Rising oil prices are benefiting government finances and hurting Alaskans,” Governor Dunleavy said in the middle of March.
“I’m asking the Legislature to help alleviate economic hardship for Alaskans now, by paying every eligible resident a PFD this year of at least $3,700. We must get funds into the hands of Alaskans now when the bills are due, not in a month’s time,” he added.
Alaska sends a check to every resident from the fund’s revenue. The checks that went out last year were $1,114 each.
Deputy Commissioner of Revenue Brian Fechter said: “Due to current market conditions, we are presented with a tremendous opportunity to use this additional revenue to provide relief to Alaskans currently grappling with high inflation all while putting billions into savings to deal with future price volatility.”
“Under the 10-year outlook, we can have surpluses while paying the PFD,” Governor Dunleavy said. “We can also rebuild our savings with these surpluses in the range of $11 billion over ten years, based on a conservative forecast of $70 plus per barrel to 2031.”
Commenting on the unexpected bonanza to Alaska’s finances, Governor Dunleavy told The Wall Street Journal in an interview:
“The more money you put in the hands of people, the better they would spend it than the state would.”
State Rep. Neal Foster, a Democrat, told the Journal that the oil revenue bonanza should be used to fund education in the state for the next school year, but Governor Dunleavy disagrees.
“If you start going down that road, you could future fund everything,” Dunleavy told the WSJ.
Alaska’s governor prefers to provide immediate relief to households and to future-proof the state’s fund in the face of volatile oil prices and high uncertainty over their future course.
Oil Demand Showing Signs of Weakness
Andreas Exarheas, Rigzone, March 29, 2022
This weakness is expected to persist.
Global oil demand has been showing signs of weakness in March and this weakness is expected to persist through April and May due to the impact of high oil prices, the negative effects of sanctions and war in Russia and Ukraine, and the consequences of increasing lockdowns in China.
That’s according to Rystad Energy’s Senior Vice President of Analysis, Claudio Galimberti, who noted that, amid the weakening in oil demand, the supply of oil products remains tight.
“The ICE Gasoil-Brent crack in Europe has been trading around unprecedented levels of $25-30 per barrel for the past couple of weeks, higher than even the memorable gasoil crack spike in 2008,” Galimberti said in a Rystad market note sent to Rigzone late Monday.
“Russia currently exports around 800,000 barrels per day of diesel/gasoil to Europe. As Europe imports between 1.6 to 2.0 million barrels per day of diesel/gasoil, an effective ban on Russia’s oil product exports could increase the gasoil crack further,” Galimberti added.
In the note, Galimberti highlighted that road transport demand has been weakening throughout March. The Rystad analyst outlined that this was driven primarily by OECD countries and less so by China, at least so far, despite news of short-lived, Covid-related lockdowns in some provinces over the past couple of months.
“However, Shanghai’s two-week-long, intermittent lockdown launched on 27 March will be amongst the most significant in China thus far this year, due to the size of the population involved (more than 25 million people), with the potential to lower demand by up to 200,000 barrels per day for the duration of the restrictions,” Galimberti said.
“Shanghai’s lockdown will give us an indication on the success of China’s zero-Covid policy and whether it will be maintained or abandoned,” Galimberti added.
According to the latest data from the World Health Organization (WHO), confirmed Covid-19 cases in China have dropped for the past three consecutive weeks, coming in at 46,962 in the week commencing March 21. Deaths have dropped for the last two consecutive weeks and stood at 1,453 in the week commencing March 21, WHO data showed.
As of March 28, 6.23pm CEST, there have been 480.1 million confirmed cases of Covid-19 globally, with 6.1 million deaths, according to the latest WHO figures. As of March 27, a total of 11 billion vaccine doses had been administered, WHO data showed.
Unpacking Biden’s European energy plan
Ben Geman, Axios, March 28, 2022
The dust is settling on the new U.S.-European Commission energy plan, so let’s explore some big themes that have emerged since President Biden unveiled it.
Catch up fast: U.S. and European officials on Friday announced new joint efforts to help cut the continent’s reliance on Russian fossil fuels.
- One big effort is to boost the already expanding U.S. LNG exports to Europe, with a goal of an additional 50 billion cubic meters annually through at least 2030.
- It also vows cooperation to help cut EU gas demand via the faster deployment of heat pumps, smart thermostats, faster renewables additions and more.
Zoom in: Here’s six takeaways on the rollout and its aftermath.
- American LNG can help but it’s far from a silver bullet. Russian gas exports to Europe last year were roughly 155 bcm.
- It puts a bright spotlight on infrastructure. Reaching the target will require more export and import facilities. Part of the plan calls for faster EU project reviews.
- The U.S. export infrastructure ramifications depend on who you ask. The White House, in a statement, tells Axios the 50 bcm target “could be met with already permitted expansions to existing facilities and completing of already permitted and under construction facilities.”
- But Europe is only one destination, and Asia has historically been the largest cumulative destination for U.S. LNG, even as more shipments head to Europe now.
- “The reality is additional infrastructure currently pending before FERC and DOE will also need to be authorized in order to meet the requirements and also meet existing contractional obligations for the facilities already in operation,” Charlie Riedl, executive director of the Center for Liquefied Natural Gas, an industry group, said via email.
- The NYT has a good look at all this.
4. Climate activists are worried about the White House’s posture. “Allowing for the expansion of new and expanded gas export facilities would lock in decades of reliance on risky, volatile fossil fuels and spell disaster for our climate and already overburdened Gulf Coast communities,” Kelly Sheehan, the Sierra Club’s director of energy campaigns, said in a statement.
5. Another thing to watch: how it affects battles over U.S. pipelines. Dustin Meyer, the VP of natural gas markets for the American Petroleum Institute, stressed that pipeline capacity is needed to move more onshore gas to export terminals.
“That’s the sort of area where you need clear and consistent permitting. In many ways, it’s just as important as what the clear consistent permitting is for the export facilities themselves,” he said in an interview.
6. The natural gas industry and its investors see bullish signs. The Wall Street Journal reports that the share prices of big U.S. natural gas producers and exporters jumped on Friday in the wake of the news.
How Biden is selling the plan
The weekend showed how the White House is trying to strike a balance between aiding Europe’s fossil fuel needs while arguing that zero-carbon sources are ultimately the best answer.
- “Over the long term, as a matter of economic security and national security and for the survivability of the planet, we all need to move as quickly as possible to clean, renewable energy,” Biden said during his speech in Warsaw, Poland, on Saturday.
- He said that’s how to ensure that “any nation being subject to the whims of a tyrant for its energy needs are over.”
Testing Golden Summit growth potential
Shane Lasley, North of 60 Mining News, March 25, 2022
Freegold Ventures Ltd. reported additional strong gold mineralization from 2021 holes drilled in both the Cleary Vein and Dolphin zones on its Golden Summit exploration project about 25 miles north of Fairbanks, Alaska.
Located about 25 miles north of Fairbanks, Alaska, and adjacent to Kinross Gold Corp.’s Fort Knox Mine, Golden Summit hosts 61.5 million metric tons of indicated resource averaging 0.69 grams per metric ton (1.36 million ounces) gold; and 71.5 million metric tons of inferred resource averaging 0.69 g/t (1.58 million oz) gold.
During 2021, Freegold completed more than 38,000 meters of drilling in 68 holes in the Dolphin intrusive, which hosts this resource and the adjacent Cleary Hill Vein System, which hosts the historic Cleary Hill Mine that produced 281,000 oz of gold from ore averaging 1.3 oz per ton before the operation was shuttered during World War II.
The latest batch of results is from 12 holes drilled in both the Dolphin and Cleary Vein zones.
Highlights from these holes include:
• 10.1 meters averaging 10.7 g/t gold from a depth of 279.2 meters in hole GS2112 (Cleary).
• 54.5 meters averaging 1.46 g/t gold from a depth of 335.9 meters in hole GS2123 (Cleary).
• 221.9 meters averaging 0.95 g/t gold from a depth of 302.1 meters in hole GS2124 (Dolphin).
• 249.5 meters averaging 1.05 g/t gold from a depth of 296 meters in hole GS2128 (Dolphin).
• 99.4 meters averaging 1.45 g/t gold from a depth of 395 meters in hole GS2133 (Dolphin).
• 51.5 meters averaging 2.05 /g t gold from a depth of 477.6 meters in hole GS2144 (Cleary).
Hole GS2123 was collared 25 meters west of GS2017, a 2020 hole that cut 1.7 meters averaging 588 g/t within a 98.2-meter zone averaging 3.07 g/t gold. GS2123 also intersected a broad zone of higher-grade mineralization from 335.9 to 390.4 meters grading 1.46 g/t gold over 54.5 meters which included a high-grade intercept of 17.1 g/t gold over 0.7 meters.
Freegold says the intercept in hole GS2144 continues to demonstrate the broadening of high-grade gold zones at depth in the Cleary zone.
The company also says the 2021 drilling clearly cut intrusive at depth on the Cleary side, further strengthening its interpretation that the Dolphin intrusive may underlie Cleary at depth. It is believed that Cleary may have dropped down along a fault on the east side of Bedrock Creek, potentially further expanding the footprint of the Dolphin intrusive.
Hosted within a structurally complex environment, the interpreted Cleary Vein System is a zone of veins, veinlets, and stockwork zones hosted within the surrounding schist, which is interpreted to be the down-dip extent of the high-grade vein zones found within the historical high-grade Cleary, Colorado, Wackwitz, and Wyoming veins. Together with their broader enveloping stockwork zones, these veins have the potential to significantly expand the existing resource through both increased tonnage and grade.
Assays are pending for 36 holes drilled last year and will be reported over the coming weeks. Once the assays are in, the 2020-2021 drill results will be incorporated into an updated mineral resource estimate for Golden Summit.
As 2021 assays slowly roll in, the roughly 20,000-meter initial phase of the 2022 program continues to further delineate the area to the south of the Cleary Vein Swarm and the area between the Dolphin and the Cleary where previous high-grade intercepts were reported.
Freegold reports that significant veining, quartz breccia, and visible gold has been encountered in an area with no previous drilling south of Cleary.
Alaska special election will gauge Murkowski’s re-election chances
Andrew Solender, Axios, March 28, 2022
The election to replace the late Rep. Don Young will put a new person in Alaska’s lone House seat for the first time in nearly half a century. It’ll also test a pioneering new voting system — and the re-election prospects of Sen. Lisa Murkowski.
Why it matters: Murkowski is the only Senate Republican up for re-election this cycle who voted to convict former President Trump. She also animated the 50-50 Senate by voting for many of President Biden’s nominees and working with Democrats on infrastructure and election reform.
How it works: Candidates from any party will run in a nonpartisan primary, and the top four vote-getters will advance to the general election.
This new system was narrowly approved by Alaska voters in 2020.
- The general election will be ranked-choice: the candidate with the fewest first-choice votes will be eliminated and their votes reallocated to their voters’ second choices. The process will repeat — with trailing candidates’ votes reallocated to the other candidates — until one wins an outright majority.
- Gov. Mike Dunleavy set the special primary for June 11 and the general election for Aug. 16 — the same date as Alaska’s regular primary election.
- In one more change, the special election primary will be entirely conducted by mail. The state faces a challenge in recruiting poll workers on such short notice, especially in a state with so many isolated communities, officials said this month.
- The candidate who wins Young’s seat, if they want to seek a full congressional term, will have to immediately turn around and run again in the regular election in November.
The special election is viewed as a bellwether for Murkowski because the ranked-choice system is specifically designed to elect consensus candidates rather than party extremists.
- Jeff Landfield, the editor-in-chief of the Alaska Landmine, said it would bode well for Murkowski “if a moderate upsets a much more conservative person,” although he cautioned the makeup of the new voting system creates many unknowns.
- A spokesperson for Murkowski’s campaign did not respond to a request for comment.
Murkowski, one of the most moderate members of the Republican caucus, is facing a more conservative, Trump-endorsed challenge from Republican Kelly Tshibaka.
- She’s the former commissioner of the Alaska Department of Administration.
- “In a lot of ways, this will be the best poll we have going into the fall elections,” said Jason Grenn, executive director of Alaskans for Better Elections, a group behind the state’s new election system.
- Grenn, a former independent state legislator, said the ranked-choice system encourages politicians to “work across the aisle, to find solutions, to compromise.”
The backstory: Young, the longest-serving member of the House, died March 18.
- He was first elected to Congress in 1973 and was known for his brash style.
- Because of his lengthy tenure and Alaska’s limited seats in Congress, a backlog has developed that could create a large field in the special election to replace him.
- Former Gov. Sarah Palin is among those teasing a run.
State of play: Two major candidates are already in the race to succeed Young: Republican Nick Begich III — the scion of a prominent Democratic political family that includes Young’s predecessor — and Democrat Chris Constant.
- Besides Palin, Al Gross, who ran for U.S. Senate as an independent in 2020, has signaled a potential run.