Budgetary Giddiness. Long Runway for U.S. Natural Gas. New Name for Coal.

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Today’s Key Takeaways:  12 orphaned wells for Alaska to plug and remediate with $42 million from the feds. BLM accidentally posted a proposed increase in oil royalty rates – from 12.5% to 18.75%. The U.S. is becoming more reliant on mineral imports. Alaska legislators are cautious about relying on high oil prices.


Orphan well programs take shape; Alaska requests $42M
Elwood Brehmer, Fairbanks Daily News Miner, January 30, 2022

Federal officials are putting together the framework of interagency programs to handle nearly $5 billion for cleaning up and plugging thousands of orphaned oil and gas wells across the country, and state regulators are moving quickly to capture Alaska’s share.

Leaders in the Interior, Agriculture, and Energy departments, along with the Environmental Protection Agency and the Interstate Oil and Gas Compact Commission, signed an agreement Jan. 14 that clarifies each agency’s role in managing $4.7 billion dedicated to well site remediation, plugging and abandonment in the Infrastructure Investment and Jobs Act passed by Congress last November.

The memorandum of understanding sets the roles for a seven-member executive group consisting mostly of Interior agency leaders to oversee well cleanup on federal lands. Separate programs are being established for state and tribal well cleanup grant programs.

According to an IOGCC report issued late last year, 33 states reported more than 92,000 orphaned wells across the country in 2020; a total that was up approximately 50% from 2018 due to a renewed focus on investigating and documenting orphaned wells.

Alaska Oil and Gas Conservation Commission Chair Jeremy Price is the state’s representative on the IOGCC. He said while Alaska has just 12 identified orphaned wells on state and private land scattered across Southcentral and the North Slope, plugging and remediation work at the mostly remote sites comes with an outsized cost. The AOGCC estimates it will take $42.6 million to properly plug, remediate and abandon the 12 well sites, according to the agency’s Dec. 29 notice of intent to apply for the federal grants.

He said the AOGCC plans to visit to some of the orphan wells and do some early work next spring — also when it’s expected the state grants will be announced.

“The (infrastructure) bill was written to get people back to work, so there’s short timelines we have to meet,” Price said, adding that some of the competitive grants will factor in oil and gas industry job losses for each state since the start of the pandemic. Alaska has lost approximately 3,300 jobs, or about 33% of its oil and gas workforce since March 2020, according to AOGCC’s notice of intent to apply for the grants.

The state’s request does not cover all of the problem wells in the state, however. Funding for the Bureau of Land Management to fix 20 remaining legacy wells needing attention in the National Petroleum Reserve-Alaska on the North Slope will come the federal well cleanup program.

Hannah Ray, a spokeswoman for Sen. Lisa Murkowski, wrote via email that the senator believes Interior should prioritize the cleanup of wells on federal lands, particularly those drilled by the federal government, as in the NPR-A. Murkowski was part of the Senate’s 10-member negotiating team on the infrastructure bill

Interior spokesman Tyler Cherry wrote in an emailed response to questions that the department is meeting the aggressive timelines established in the infrastructure bill to get money “out the door.”

Interior officials are working to publish the amount of formula grant funding each state will be entitled to apply for along with application guidance, according to Cherry.

“The department is wasting no time in working with our partners to ensure these investments and programs make sense for the communities they are intended to benefit,” he wrote. “We are focused on implementing these programs as quickly and efficiently as possible.”


Biden Administration Considers Hiking Royalty Rates for Oil
Charles Kennedy, OilPrice.Com, February 1, 2022

The Biden administration seems to be considering an increase in royalty rates for oil companies operation onshore, Reuters has reported, citing an accidental release of a draft notice posted on the website of the Bureau of Land Management that was later removed.

The proposed increase, according to the draft notice, is to 18.75 percent, compared with a minimum 12.5 percent required by law, the report noted. It also added a comment by an Interior Department official who said, “The BLM accidentally posted some pre-decisional draft language on their website.”

Higher royalty rates for onshore drillers would be keeping with the Biden administration’s push into renewables and away from fossil fuels. It would also aggravate an already tense relationship between Washington and the oil industry made so by the very same push.

Despite this push, however, the federal government was forced by a court order to hold an offshore lease sale last year, after a group of oil-producing challenged the moratorium in court. In June, a federal judge granted a preliminary injunction to Louisiana and another 12 states that sued the administration over the drilling moratorium.

That court decision forced the federal government to hold an offshore lease sale, which turned out to be the biggest in history. The auction brought in $192 million in winning bids for 307 tracts covering 1.7 million acres. The interest around the sale was significant in part due to the low carbon footprint of the crude extracted from these waters.

Yet the lease sale did not go unchallenged either. A group of environmentalist organizations, including the Sierra Club, Earthjustice, the Center for Biological Diversity, and Friends of the Earth, sued, accusing the Bureau of Ocean Energy Management of breaking the National Environmental Policy Act by failing to make an assessment of the emissions resulting from the lease sale.

“Barreling full-steam ahead with blinders on was simply not a reasonable action for BOEM to have taken here,” said District Judge Rudolph Contreras, who voided the lease sale and sent it back to the Interior Department, which now has to decide what to do with it.


US LNG pipeline feed-gas giant Kinder Morgan sees ‘a long runway’ for natural gas in America
LNG Unlimited, February 1, 2022

Kinder Morgan Inc., the US pipeline giant transporting natural gas to LNG plants and to customers around America, gave a fourth-quarter conference call describing its performance with Executive Chairman Richard D. Kinder saying there was “a long runway for fossil fuels, especially natural gas” in the nation.

KMI had reported net income of $637 million compared with $607M in the same three months of 2020 with distributable cash flow of $1.09 billion compared with $1.25Bln in the fourth quarter of 2020.

Robust earnings

Adjusted earnings were $609M for the quarter versus $604M in the fourth quarter of 2020.

“Our assets once again generated robust adjusted earnings and strong coverage of this quarter’s dividend,” said KMI Executive Chairman Richard D. Kinder.

“The company provides our investors with dependable value grounded on stable cash flows and a time-honored corporate philosophy: fund our expansion capital opportunities internally, maintain a healthy balance sheet, and return excess cash to our shareholders through dividend increases and/or share repurchases,” stated the Executive Chairman. 

“In short, there is a long run-way for fossil fuels and especially natural gas. Investing in the energy sector has been very lucrative recently with the energy sector, the best-performing of the S&P 500 (top stocks) during 2021,” Kinder explained.

“We expect that favorable view to continue in 2022, and the year has started out that way,” he added. 

“Within the energy segment, I would argue that midstream pipelines are a good way of playing this trend. They generally have less volatility and less commodity exposure than upstream and most have solid and growing cash flow underpinned by contracts to a large extent with their shippers. We believe KMI is a particularly good fit for investors,” he declared.

“We paid down over $12Bln in debt since 2016 and 2022 marks the fifth consecutive year we have increased our dividend, growing it over those years from $0.50 per share to $1.11 per share,” he told analysts in the conference call. 

KMI Chief Executive Steve Kean stated in his contribution that he was especially proud of his more than 10,000 KMI co-workers who “remained laser-focused on safety, operational excellence, and customer service” the past three months.

“As we complete our 25th year, future prospects for the company look very bright. Our business model, predominantly take-or-pay and fee-based, long-term contracts with creditworthy customers, remains durable,” explained the CEO.

“Our interconnected network of transportation and storage infrastructure is now recognized as even more valuable in the marketplace,” stated Kean.


From the Washington Examiner, Daily on Energy:

US BECOMING MORE RELIANT ON MINERAL IMPORTS: Total value of domestic nonfuel mineral production increased 12% in 2021 year-over-year, but the U.S. was still heavily reliant on imports from both allies and from China and Russia last year, according to a new mineral commodities report by the U.S. Geological Survey.

Imports made up more than one-half of the U.S.’s apparent consumption for 47 nonfuel mineral commodities. The U.S. was 100% net import reliant for 17 of those minerals, including arsenic, graphite, and manganese.

Rich Nolan, president and CEO of the National Mining Association, said the report indicates that “U.S. mineral import reliance is only deepening, with ever-greater reliance on our geopolitical rivals.”

“Meeting the material needs of tomorrow and building the supply chains our economy demands requires a whole-of-government approach to ensure made-in-America also means mined-in-America,” he said in a statement provided to Jeremy.

The deficits were smaller for other critical minerals, like cobalt and zinc, but the U.S. still relied heavily on imports.

Mining interests and many Republicans have seized on the fact of U.S. import reliance for many of these minerals, some of which are key inputs in batteries and other renewable energy technologies, criticizing the Biden administration and environmental groups for opposing certain mining projects like the Twin Metals mine in Minnesota.

But the administration has recognized it has to help incorporate more domestic mining to support its green energy policies. Jigar Shah, director of the Energy Department’s Loan Programs Office, said in a recent tweet, “We have plenty of Lithium here in the USA, we know where it is and have been given a mandate to bring it online either through mining, geothermal brine, or recycling.”


Legislators cautious of overreliance on high oil prices
Larry Persily, The Cordova Times, January 31, 2022

In a break from past practice, the Alaska Department of Revenue this year will provide monthly updates to legislators whenever projected oil prices — and state revenues — move up or down more than 10%.

Several legislators worry that could confuse budget deliberations this session.

Revenue staff has updated the state’s twice-yearly oil-price forecasts internally but not released the numbers to the public, the department’s chief economist Dan Stickel told the Senate Finance Committee on Jan. 20.

“We’ve decided to go ahead and start releasing them publicly,” he said.

The department’s annual December revenue forecast and Jan. 19 update reported that high oil prices of recent months, and expectations of high prices for at least the next year, would produce $2 billion more in tax and royalty revenues for the state treasury for fiscal years 2022 and 2023 than the department had forecast last spring.

With oil around $80 per barrel, every additional $1 boost in the price for a full year would add about $80 million to the state general fund, according to the state’s estimates — or drive revenues in the other direction if prices drop.

Legislators, however, are cautious about counting too much on high prices to last. And they are concerned that monthly updates of projected state revenues could provide an excuse for advocates of higher state spending.

“History shows us that with high oil prices comes (budgetary) giddiness,” said Juneau Sen. Jesse Kiehl.

The additional dollars from high prices could add to political pressure for lawmakers to appropriate a substantially larger Permanent Fund dividend this year, Kiehl said. Boosting the size of the dividend is a big piece of Gov. Mike Dunleavy’s spending plan and has been a major political theme for the governor, who is running for reelection.

A majority of lawmakers have resisted Dunleavy’s calls for bigger PFDs the past three years, arguing against overspending the Permanent Fund for short-term political gains, while arguing for building up savings and filling gaps in public services such as education.

Besides adding to pressure for spending on a larger dividend, the proliferation of oil-price and oil-revenue forecasts with monthly updates could make it harder for legislators to agree on a spending plan for the fiscal year that starts July 1, said Senate Finance Committee Co-Chair Bert Stedman, of Sitka.

The House Finance Committee, Senate Finance Committee and governor’s Office of Management and Budget could be using different numbers, Stedman said last Friday. All of the players at the budget table need to agree on the same revenue numbers, “and then we live with that within the budget.”

Otherwise, “we’ll feel like a yo-yo,” he said.

Higher monthly revenue estimates risk some lawmakers justifying more spending, particularly on the politically popular public works budget and dividends, Stedman said.

Though most of the state’s general fund dollars come from the annual draw on Permanent Fund earnings, oil is the most volatile of Alaska’s revenue streams, and high prices can provide a substantial boost to the treasury.

Stedman would prefer legislators start work on the budget based on revenue numbers from the department’s December forecast, and then update their numbers when the spring forecast comes out in April. The Senate Finance Committee “will have to think how we want to lock in a price for the budget (deliberations),” he said.

And even if the revenue department’s monthly update shows projections of higher tax and royalty receipts next year, the state cannot “bank on forecast oil prices,” said Ketchikan Rep. Dan Ortiz, a member of the House Finance Committee.

Ortiz said he is nervous about moving forward on the budget under the assumption that current oil prices will remain elevated. Markets have not been this high since 2014.

“Oil has and will always fluctuate,” he said.


DOE coal panel gets new name, focus
Carlos Anchondo, ENERGYWIRE, February 1, 2022

The Energy Department said the charter for the National Coal Council has been “modernized to reflect matters currently faced by the coal industry, workers, and communities.”

ENERGYWIRE | The National Coal Council, an Energy Department advisory panel that lapsed last year, is getting a new name and revamped focus, according to a notice published yesterday in the Federal Register.

The panel, whose charter wasn’t renewed in November, will be known as the National Advisory Committee on Coal (NACC), and is reestablished for a two-year period, according to the notice from DOE’s Office of Fossil Energy and Carbon Management.

“The Committee will provide advice, information, and recommendations to the Secretary of Energy on a continuing basis regarding general policy matters relating to coal issues,” the DOE notice said.

Last year, Jennifer Wilcox, the principal deputy assistant secretary for fossil energy and carbon management, said in a letter to the chairman of the National Coal Council that the department would let the panel’s charter lapse while it was revised (E&E News PM, Nov. 23, 2021).

“The realities of federal advisory committee procedures mean that the current charter will lapse for a period until the new charter is approved but rest assured that the important work of the National Coal Council will continue,” Wilcox wrote in the letter, dated Nov. 20.

Yesterday, DOE said the charter for the group — formed in 1984 as a federal advisory board on coal policy — has been “modernized to reflect matters currently faced by the coal industry, workers, and communities,” as well as priorities outlined in different pieces of legislation, including the bipartisan infrastructure law signed by President Biden last year.

“The re-establishment of the Committee has been deemed essential to the conduct of the Department’s business and in the public interest in conjunction with the performance of duties imposed upon the Department of Energy, by law and agreement,” the notice also said.

DOE said it will pick committee members from across the United States and from “all segments of the coal industry,” including large and small companies, as well as commercial and residential consumers.

In a letter last fall, 28 congressional Republicans argued that the coal council could play a role in advancing technologies that cut the fuel’s emissions (E&E Daily, Oct. 13, 2021).