Today’s Key Takeaways: Big Oil in court in Baltimore, at stake: fed or state courts? Oil prices are, once again, strengthening Alaska’s economy. Alaska Natural Gas Corp. to explore over 915,493 acres for 10 years. White House creates partnership with state and city governments to boost energy efficiency of buildings.
NEWS OF THE DAY:
Baltimore, Big Oil to square off tomorrow in court
Lesley Clark, CLIMATEWIRE, January 24, 2022
Attorneys for Baltimore and fossil fuel interests are scheduled to face off tomorrow in a closely watched climate litigation case that could signal which courts may ultimately hear allegations that the oil and gas industry misled the public about the dangers of global warming.
The oral arguments before a Virginia appeals court will be the first since a Supreme Court ruling in May found that appellate judges could consider a broader range of factors when deciding whether liability lawsuits should be heard in state or federal court (Greenwire, May 24, 2021).
The procedural ruling in Mayor and City Council of Baltimore v. BP PLC, was seen as a win for the companies, who argue that energy production is a federal issue and see the federal courts as a friendlier venue.
Baltimore, which originally filed its climate liability lawsuit against BP, Exxon Mobil Corp. and 24 other oil companies in state court in 2018, will argue that the cases — which seek damages for the costs of dealing with climate change effects such as sea-level rise and flooding — should be heard at the state level.
The outcome could influence other cases; nine similar climate litigation cases were sent back to the appellate level after the Supreme Court ruling. The 9th U.S. Circuit Court of Appeals in Hawaii is scheduled to hold arguments Feb. 18 in a similar case (Climatewire, Jan. 13).
“Judges look at other judges’ work,” said Georgetown Law professor William Buzbee. “Each time a court begins to explore and clarify what is tenable and what isn’t, it shifts the playing field, it narrows what the cases are about and begins to both illuminate arguments and introduce others.”
Attorneys watching the case suggested the companies are looking at the case as a way to convince the Supreme Court to wade into the merits of climate litigation.
“This is an important case,” said Bob Percival, director of the University of Maryland’s environmental law program. “I don’t think the companies realistically think they’re going to win … but what they’re hoping is to set up a vehicle to go to the Supreme Court and say ‘Now, you can be really aggressive and preempt all climate litigation.’”
Percival noted the high court last May made it clear that it was not accepting the industry’s invitation to decide the case on the merits.
“They want to get an activist Supreme Court to wipe out the biggest headache facing these oil companies, they desperately want to avoid a trial that would expose to the public what they knew about climate change,” he said.
Phil Goldberg, special counsel for the Manufacturers’ Accountability Project, an initiative of the National Association of Manufacturers that opposes the climate liability litigation, said the companies will argue that addressing climate change requires a coordinated federal approach.
“These are federal policy issues, and they need to be heard at the federal level and decided at the federal level,” Goldberg said. “It should not be decided by individual state judges on a state-by-state basis.”
In the association’s friend of the court brief filed in August, it argued that to resolve the various state and municipal climate change claims, state courts would need to “create new rules governing the international production, sale, promotion, and use of fossil fuels.”
That, the association said, would “undermine national energy objectives, including federal efforts on the climate, energy independence, the stability of the electric grid, and energy affordability.”
Sara Gross, who is handling the case as chief of the affirmative litigation division at the Baltimore City Law Department, declined to comment, saying the city would let a June 2019 federal court judge’s “thorough rejection of all the defendants’ removal claims, our briefing, and our arguments speak for themselves.”
In the 2019 ruling, District of Maryland Judge Ellen Hollander sent Baltimore’s climate nuisance case against oil companies back to state court, rejecting all eight of the oil companies’ “battery of grounds for removal” (Climatewire, June 12, 2019).
In the companies’ brief filed in August, the companies emphasized two grounds for removing the case to federal court that it said the court had not yet considered: that the claims “arise” under federal law and that the city’s “alleged injuries” are connected to the production of oil and gas from the outer continental shelf and are subject to a 1953 federal law that regulates that production.
The brief argues that Baltimore made it clear that its claims “implicate inherently national and international activities and interests, including treaty obligations and federal and international regulatory schemes.”
For interstate and international pollution claims, the brief says, “the only available source of law is federal.”
The companies also argue that Baltimore’s request for relief would “significantly affect the continued scope and viability” of the companies’ oil and gas drilling operations along the outer continental shelf and the federal OCS leasing program “as a whole.”
The companies note that the defendants — and their subsidiaries or affiliates — presently hold about 22 percent of all outer continental shelf leases.
Baltimore in its response cited a previous appeals court ruling that found the city’s claims involve the companies’ alleged “concealment and misrepresentation” of the dangers of climate change and “do not implicate any body of federal common law and are unconnected to any operations on the Outer Continental Shelf.”
The city says its claims are based on “traditional state-law nuisance, trespass, products liability, and consumer protection.”
And it charges that industry gets it wrong when it says Baltimore is seeking to regulate air pollution across the country.
“The city’s actual theory is that appellants are liable for climate change-related harms caused by their deliberate misrepresentation of the climatic dangers of fossil fuels and their misleading marketing of those products,” the city says. “It targets misconduct that falls within fields of traditional state regulation, including ‘protection of consumers.’ “
The city pointed to the fact that a number of U.S. foreign policy officials, including current Secretary of State Antony Blinken, signed a friend of the court brief in state court that said, “no aspect of this case would interfere with federal foreign policy prerogatives.”
Oil prices are again strengthening Alaska’s treasury. Higher oil revenues, thanks to an expected rise in prices and rising production, will bring about $750 million to the state’s general this year and next, the state Department of Revenue announced last Wednesday.
The extra revenue will loosen things up for the state budget, at least for this year, and will help Gov. Mike Dunleavy, who is running for reelection, in his quest for a larger Permanent Fund Dividend.
The longer-term outlook for Alaska’s petroleum industry is still problematic, however.
Fossil fuels are under political pressure worldwide and small companies, traditionally aggressive explorers in Alaska, are having problems.
“They’re having a very tough time raising money,” said Corri Feige, the state Commissioner of Natural Resources.
Major banks and investors groups are newly sensitive to climate concerns. Anti-fossil fuel campaigns by activist groups, particularly for the Arctic, are having an impact.
It isn’t just small independents, either. Investors say they won’t put any money into drilling in the Arctic National Wildlife Refuge or the Arctic offshore.
Even conventional onshore North Slope projects led by larger companied are getting tough questions about environmental performance and interaction with indigenous groups, people familiar with the industry say.
This year Alaska will see one of its slowest winter drilling seasons in years despite oil prices rising to over $80 per barrel. Only two exploration wells are currently planned, down from the six or seven that has been the norm recently.
In the state’s Oct. 2 annual “areawide” North Slope lease sale only two companies submitted bids, and for six leases.
Even the larger companies who operate producing fields on the North Slope are slow to resume in-field work after big cuts last year when the pandemic hit and oil demand and prices crashed.
Alaska’s petroleum industry workforce has dropped to 6,300, less than half the number employed in 2015.
Oil jobs are the highest paying in the state, so the industry’s shrinkage worries the state’s business community.
State officials say banks and equity investors are only getting part of the story, however, and have mounted a campaign to tell the rest of it.
Feige and Lucinda Mahoney, the state’s revenue commissioner, have launched an effort with banks and investment groups to counter the anti-Alaska messaging.
The two commissioners have been meeting with banks and investor group in New York and Houston. Feige said the message she and Mahoney are giving is that Alaska has robust potential for new finds and ample capacity available in the Trans Alaska Pipeline System.
Also, the state’s environmental regulatory framework and North Slope operators’ practices meet investment guidelines of the World Bank and major investment groups.
“Alaska has been meeting and exceeding ESG principles for more than 40 years, and we’re taking a hard look at the reasoning behind some of the more restrictive anti-Arctic investing policies out there,” the commissioner said.
“Without exception, the financial institutions (in the meetings) were unaware of how Alaska does business and how the core principles behind ESG – social responsibility, consideration for and protection of indigenous cultures, and public involvement is behind the decision making around development,” she said.
These are in the state’s constitution, its statute and regulations and are demonstrated in years of best practices by field operators, Feige said.
Mahoney, the state revenue commissioner, is said to have list of banks and investors who have said no to Alaska projects. The two commissioners have clout, too.
Alaska’s sovereign wealth fund, its Permanent Fund., is now worth about $83 billion. Almost every major US investment group has or wants a piece of that. Feige and Mahoney are both trustees for the Permanent Fund. That means phone calls from the two commissioners get returned.
Alaska’s industry faces other problems, though. COVID-19 infection rates are high and that makes companies working in remote locations like the North Slope very cautious, Feige said. Activity is slowly resuming but companies are finding it hard to lure skilled workers back. Operators are also experiencing supply chain problems exacerbated by the North Slope’s remoteness and higher costs.
But the prospects for large discoveries are still there, Feige said. Companies drilling in the recently discovered Nanushuck trend are seeing a 96 percent success rate in finding new oil, she said. Two billion-barrel finds have been made in recent years in the Nanushuck, Feige said.
The commissioner is optimistic: “We’re told by companies that activity levels will be higher next year when the virus and supply chain problems are hopefully under better control,” Feige said.
However, Alaska’s problems can’t all blamed on messaging by activist groups The Alaska industry has suffered some bad breaks in other ways.
ConocoPhillip’s $6 billion Willow project in the National Petroleum Reserve-Alaska, or NPR-A, is now stalled by environmental lawsuits. Also, the Biden administration is unwinding President Donald Trump’s leasing in the Arctic National Wildlife Refuge coastal plain.
The Department of the Interior has suspended actions on leases issued by the Trump administration earlier this year in the refuge.
Rene Santos, with Platts Analytics, say he isn’t surprised at the overall lack enthusiasm for Alaska. Exploring is expensive, the lead times to production are long, and if ANWR and the offshore are off the table, prospects for discoveries aren’t big enough to interest large companies despite the new Nanushuck finds, which have yet to produce and confirm their productivity.
In contrast, companies in the reemerging shale oil plays of the U.S. “Lower 48” are having fewer problems getting financing. “They’re finding it easier, cheaper and the scrutiny over environmental and social performance isn’t as intense,” Santos said.
Some of Alaska’s problems are self-inflicted, too. A state incentive program that backed exploration drilling with cashable tax credits, a boon to small independents, was abruptly ended in 2016, leaving many companies and their banks, suddenly short of funds. More than one small explorer went bankrupt.
Alaska says it will eventually make good on about $700 million still owed small companies on the tax credits, but the Legislature has made payment on the debt at a glacial pace.
A $54 million payment was made in late November, but the payment should have been $114 million under a payoff plan the state agreed to but has not complied with. No payments were made in the previous two years. This has also tarnished Alaska’s reputation among small explorers and banks.
Feige is still upbeat. ConocoPhillips’ Willow discussions are underway between the company and the US Bureau of Land Management, which manages the NPR-A, on solving problems raised in the environmental lawsuits.
So far, the Biden administration has been supportive of development in the national petroleum reserve, in contrast with its position on ANWR.
Meanwhile, some in Alaska think the state and its industry are too focused on past glories to sense new opportunities. Harold Heinze. retired senior executive of Atlantic Richfield Co. and a former state resources commissioner, thinks Alaska should get with, not fight, the coming energy transition.
Heinze said Alaska should jump on President Biden’s hydrogen bandwagon, for starters, with 35 tcf of proven natural gas reserves on the North Sope that are stranded with no gas pipeline.
Companies could make hydrogen at Prudhoe Bay with the gas to power the huge compressors there used to reinject gas produced with oil back underground, as well as power the oilfields. These facilities are now a huge source of carbon dioxide emissions.
US Department of Energy and University of Alaska researchers are also looking at making liquid ammonia from North Slope gas as a liquid fuel for carbon-free power generation. The ammonia could be shipped through spare capacity the existing trans-Alaska oil pipeline.
As for carbon extracted in making hydrogen and ammonia there are large geologic formations on the slope where carbon could be sequestered and safely sealed by 2,000 feet of permafrost, the frozen rock that underlies all of northern Alaska.
In some other respects Alaska has already moved beyond oil. The state budget, almost totally dependent on oil taxes and royalties a few years ago, is now 70 percent-plus supported by earnings from the Alaska Permanent Fund.
Meanwhile, explorers are perennial optimists. Five of the six leases sold by the state on Nov. 2 were to Bill Armstrong, a Denver-based explorer with a long Alaska track record, and who led the major discoveries in the Nanushuck formation.
Armstrong’s interest is significant and will get the attention of others in the industry. But it’s lonely out there, and tough for anyone trying to raise money.
Richard Garrard, another veteran exploration geologist, said “In my 26 years of exploring the Alaska North Slope the apparent lack of recent interest is unusual and concerning. The lack of exploration drilling this winter is also concerning.”
“I appreciate that much of the onshore area is currently under lease, but I believe the problem might be complicated. With the high price of oil and worldwide (oi) shortages I suspect the state would have expected new interest from other companies and better participation from existing players,” Garrard said.
But in the long run, he feels the problems are man-made and, in the end, manageable.
“Everything is negotiable except the geology, and fortunately that is on our side,” he said.
State prepping to approve broad Susitna gas exploration licenses
Elwood Brehmer, January 23, 2022
State regulators are initially backing a proposal to award nearly a million acres in the Susitna River valley to an Anchorage company on the long hunt for unconventional sources of natural gas after years of review.
Division of Oil and Gas Director Tom Stokes in mid-December issued a detailed preliminary best interest finding, that, if finalized, would approve two natural gas exploration licenses giving exclusive gas exploration rights to Alaska Natural Gas Corp. over 915,493 acres for 10 years.
State law limits the area exploration licenses can cover to 500,000 acres, so Alaska Natural Gas Corp. applied for two licenses covering 434,835 acres and 480,658 acres, according to the finding report.
Oil and Gas officials are now extending a public comment period on the finding through Feb. 21. Spokesman Sean Clifton said the division had received one comment on the license through Jan. 14 and some residents of the large area asked for more time to review the lengthy document.
Anchorage-based Alaska Natural Gas Corp. first applied for the licenses in April 2017 following a 2016 determination by then-Oil and Gas Director Corri Feige that all state-owned acreage in Southcentral would be available for oil and gas exploration licensing. Feige is now commissioner of the Department of Natural Resources, which houses the state Division of Oil and Gas.
Approximately 71% of the proposed exploration areas are state land, according to the finding.
Division officials spent the intervening years compiling the 312-page best interest finding, which concludes that the company is most likely to find coal bed methane deposits found within coal seams scattered across the area. It’s currently assumed Alaska holds more than 1 trillion cubic feet of coal bed methane statewide, though how much of it is feasible produce is unclear.
Methane is the base molecule of natural gas.
“Economically producible coal bed methane is an attractive alternative to diesel fuel, which is the main energy source for home heating and electrical power generation throughout much of rural Alaska,” the finding states.
Coal bed methane is typically produced from coal seams after groundwater is pumped out, which depressurizes the deposits and allows the gas to flow to the surface more freely.
The two licenses also come with a one-time, $1-per-acre license fee and work requirements of $3 million and $3.3 million. Alaska Natural Gas Corp. originally applied for work commitment amounts of $500,000 each, but that does not reflect the current economic climate and the likely costs of conducting fieldwork necessary to meet the requirements of the licenses, according to the finding.
State business records indicate Alaska Natural Gas Corp. is led by Robert Fowler; however, Fowler did not return multiple requests for comment in time for this story.
The company’s website states Alaska Natural Gas Corp. “is developing itself into a coal bed methane (CBM) producer” that uses horizontal drilling techniques to minimize its development footprint and maximize its gas production capability.
Australian-based Linc Energy explored coal deposits on the west side of Cook Inlet not far south of the Susitna area in the early 2010s to no avail. Other small-scale gas exploration programs have been conducted largely in the southern Susitna Valley over the years as well.
Alaska Natural Gas Corp.’s combined license areas cover much of the western half of the Susitna Valley, from south of Willow to near Peters Creek in the north and beyond Skwentna to the west. The western portions of the license areas are also in the vicinity of route options for the West Susitna Access Road project proposed by the Matanuska-Susitna Borough and backed by Gov. Mike Dunleavy’s administration.
China lets in most of the Australian coal stranded at its ports
Mining.Com, January 24, 2022
Most of the Australian coal used by steelmakers that was being held at Chinese ports in the wake of Beijing’s import ban has now been cleared, according to local research firm Fengkuang Coal Logistics, although there’s no sign that the halt on new shipments will be lifted.
Customs data for the final quarter of last year show 6.2 million tonnes of Australian coking coal were finally allowed in, along with another 5.5 million tonnes of thermal coal that was destined for power plants from China’s former trading partner for the fossil fuel.
It’s unclear how much coal in total was stranded after Beijing halted Australian imports near the end of 2020 as political ties with Canberra soured. Still, the customs figures are close to industry estimates of the amount of coal that was in limbo, and it’s highly likely in any case that China’s power crisis in the autumn would have soaked up most of the thermal coal also being held at its ports.
China’s customs administration didn’t immediately respond to calls seeking comment.
But that’s not quite the end to a saga that at its most dramatic saw dozens of carriers stacked for months off the Chinese coast, trapped between the authorities who wouldn’t let them unload and buyers who wouldn’t let them leave. The upshot is that the ban on Australian coal has created some unlikely winners.
China doesn’t produce enough of the higher-grade coking coal and was for a long time reliant on Australian mines. But pandemic controls have choked the flow of shipments from neighboring Mongolia, another top supplier, leaving exporters in the U.S. and Canada — hardly nations favored by Beijing — to pick up the slack.
Even as China’s total coking coal purchases dropped by about a quarter to 55 million tons last year, the amount arriving from the U.S. grew nearly 10 times to account for almost 20% of China’s imports, according to Fengkuang. Meanwhile, Canadian shipments doubled to nearly the same portion.
Whether the ban on Australian fuel continues, and the impact of the pandemic on Mongolian supplies, mean that “the coking coal import market in 2022 remains highly uncertain,” Fengkuang said.
China’s needs this year will depend on demand from the steel industry, which in turn will be shaped by whether Beijing continues to insist on lower production to meet its carbon targets, and the degree to which infrastructure spending will be used to buttress flagging economic growth.
Alaska legislative leaders say passing an on-time budget is a top priority this year
Andrew Kitchennmann, KTOO, January 23, 2022
The leaders of the Alaska Legislature say they’d like to see the state budget pass on time this session. And some of them want to see the Legislature pass a long-term plan for the state’s finances and permanent fund dividends. But they acknowledge there are significant obstacles in both the short and long term.
Higher oil prices, growth in the permanent fund and federal funding are some of the reasons the state has more money this year.
Senate President Peter Micciche, R-Soldotna, said it’s a quandary. It could make the annual budget easier, but it also removes some of the pressure to pass a long-term plan. He said a long-term compromise will take lawmakers crossing the divides in both chambers to talk with each other.
“There’s tension in all four caucuses,” he said. “We have very different kinds of people that may have the same letter next to their name. And they just need to put their pride aside, get in the same room together and talk those issues out.”
He said the fact that this year is an election year isn’t an excuse to fail to take action.
“I hope Alaskans are judging legislators this year on whether or not something does happen” in passing a long-term plan, he said. “Really good economic situations, fiscal situations in Alaska are temporary. And a fiscal plan will make that permanent.”
Sen. Tom Begich, D-Anchorage, is the Senate minority caucus leader. Along with work on a fiscal plan, he’s focused on a bill aimed at improving students’ reading skills, which would also expand access to pre-kindergarten education. And he said it’s important that the Legislature pass a plan on how to spend billions of dollars of federal infrastructure and other funding. He also acknowledged that the higher revenue could be a mixed blessing.
“It makes it very difficult to get a fiscal plan, when people can get an easy ride in an election year,” he said. “And my job is to hold people accountable to needing to put together a fiscal plan, especially because it’s easier to do it now. It’s much easier to do it now while we can afford to do it than it will be down the road, when it’s just going to become a bitter argument that pits people against each other.”
He said bills put forward by him and the Senate Finance Committee that would rewrite the permanent fund dividend formula among other things are a starting point. He also said a decrease in the student population could allow for the state to expand pre-K without increasing overall school spending.
In the House of Representatives, Speaker Louise Stutes, R-Kodiak, said the majority caucus is more cohesive than it was a year ago, when it took weeks into the session to form a majority. The majority is mostly Democratic, but it includes two Republicans and four independents.
“I would say that our priority is getting out of here in a timely fashion,” she said. “And in order to get out of here, we have to have a budget that has passed.”
Like Begich, she said it’s important for the Legislature to appropriate the money that the state is receiving from the federal relief and infrastructure bills. She objected to provisions of Gov. Mike Dunleavy’s budget plan that use federal dollars in place of state spending. She said the federal money should add to the state services.
For example, she’s concerned that Dunleavy’s administration relies on federal money to operate the Alaska Marine Highway System.
“So, what happens at the end of five years, when the federal dollars run out?” she said.
Stutes also said that the House committee chairs will determine the agenda for bills other than the budget. She added that legislators will be aware of the need to finish their work with an election year ahead of them.
House minority leader Rep. Cathy Tilton, R-Wasilla, said a long-term plan is needed to bring business investment to the state. Her caucus’s other priorities include passing bills related to elections and opposed to vaccine mandates. They also support a bill that would require that patients be allowed to have someone with them to provide support in the hospital.
Tilton said she hopes the Legislature can finish the budget without a state government shutdown, like what nearly happened last year.
That would require more members of her caucus supporting allowing the budget to go into effect on July 1. The votes of at least six minority-caucus House Republicans are needed for bills to go into effect less than 90 days after they’re signed into law, according to Dunleavy’s administration.
And she said that may not happen this time.
“Last year, we were able to come together on the fiscal policy working group,” Tilton said. “But the outcomes of that were not what we expected. So therefore, I’m not so sure that we would be able to come together.”
Last June, minority-caucus Republicans relented when the other caucuses agreed to form a group that would recommend a plan.
While that happened, the plan didn’t advance during special sessions. Committees have been meeting to discuss both this year’s budget and Alaska’s long-term outlook.
White House unveils efficient-buildings effort
Ben Geman, Axios, January 24, 2022
Why it matters: The commercial and residential buildings sector is a major source of greenhouse gas emissions.
What’s next: The administration said the Building Performance Standards Coalition will seek to help bolster local policies.
- A White House summary Friday notes the bipartisan infrastructure law provides $1.8 billion for retrofits and to aid state and local policy implementation.