Busting at Seams. Aussies Invest Big. Oil Disruptions Looming. $3700 PFD?

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Today’s Key Takeaways:  On day one, Biden suspended the authority of local BLM offices to approve leases, drilling permits and mining operations plans.  IEA says large-scale oil supply disruptions are likely as a result of sanctions on Russia.  U.S. natural gas production risks busting at the seams with infrastructure constraints already impacting production.   Australia announced A$500 million ($360 million) in funding to boost output of critical minerals.  New AK revenue forecast based on $120 oil prompts call for $3700 PFD. 


Biden Administration Handicapped Domestic Energy Production on First Day in Office, Memos Reveal
Caroline Downey, National Review, March 16, 2022

Contrary to President Biden’s recent claims that his administration is pulling out all the stops to alleviate America’s inflation woes, since its early days it has fostered a policy environment that is hostile to domestic energy production, fueling price hikes at the gas pump long before Russia’s invasion of Ukraine, according to memos obtained by National Review.

On the day Biden took office, his Department of the Interior issued a memo suspending the authority of local Bureau of Land Management offices to approve leases, drilling permits, and mining operations plans that would support America’s oil supply, Republican senator Dan Sullivan of Alaska explained on the House floor Monday night. Sixty days later, a second memo was sent out by political appointee Laura Daniel Davis extending the suspension of local authorities indefinitely and making the fate of all future leasing and drilling permits contingent on her personally rubber-stamping them.

A month ago on February 15, as the conflict in Ukraine took a turn for the worst and Western nations retaliated against Russia with economic penalties, amid already record-high gas prices, Biden told the public, “We’re prepared to deploy all the tools and authority at our disposal to provide relief at the gas pump.”

He assured Americans last week, “It’s simply not true that my administration or policies are holding back domestic energy production. That’s simply not true.”

But these memos, obtained by National Review, appear to show that the Biden administration intentionally handicapped the domestic oil industry from day one as part of its mission to transition the U.S. to a green economy. Now that gas prices and inflation are reaching record heights, Biden has pinned a large chunk of responsibility on Russian president Vladimir Putin, whose attack on Ukraine has created tumult in energy markets, given that much of the West, particularly Europe, is dependent on Russia for oil.

Chad Padgett, former career senior executive for BLM in Alaska and state director for Sullivan’s Alaska Senate office, implied that such statements from the White House are a cop-out, since the Biden administration laid the initial groundwork for energy crunches by restricting domestic energy production.

The first memo from January 2021 suspended a range of activities that would help promote U.S. energy independence, barring the Interior Department from issuing “any onshore or offshore fossil fuel authorization, including but not limited to a lease, amendment to a lease, affirmative extension of a lease, contract, or other agreement, or permit to drill.”

Padgett confirmed that all activities related to leases and environmental processes “came to a screeching halt” due to the first order. As a result, Padgett was unable to direct his employees across Alaska to do any work on existing projects, he claimed. Then, Laura Daniel Davis, the then-acting assistant secretary for Lands and Minerals at BLM, “transcended all the states with oil and gas activities as well as environmental processes” by announcing in a subsequent memo that she would have to approve all permits to drill.

The second order “took all decision-making authority previously delegated to the state director down to field manager level and made it basically so we couldn’t do our jobs. We had to be approved from a political level to be authorized for the simplest of permits,” Padgett noted.

This action was harmful from both an environmental and production perspective, he said. It made cleaning up legacy or “orphan” wells, which had been used and abandoned historically, also subject to Davis’s approval. And on the production side, “we had to sit back and wait until we got the blessing of Davis to move forward,” he said.

While Biden has tried to put the onus on oil producers to fix the current energy deficit, they’re the victims of Biden’s policies, Padgett said. Both the memos and other actions had the effect of “destabilizing the industry” and energy production on federal land, he added. During recent press briefings, White House press secretary Jen Psaki has echoed the claim that the U.S. economy is patiently waiting for U.S. energy companies to get into gear, which Padgett refuted.

“Just to be very clear, federal policies are not limiting the supplies of oil and gas,” Psaki said at a recent press briefing. “The suggestion that we are not allowing companies to drill is inaccurate. The suggestion that that is what is hindering or preventing gas prices to come down is inaccurate.”

She told Fox News last week that the U.S. is already producing oil “at record numbers,” adding that “there are 9,000 approved drilling permits that are not being used.”

“So, the suggestion that we are not allowing companies to drill is inaccurate,” she said. “I would suggest you ask the oil companies why they’re not using those if there’s a desire to drill more.”

But there are a number of bureaucratic hoops that must be jumped through before those existing 9,000 leases can be drilled, Padgett said. Most wells don’t go online right away and there are certain wells that were previously drilled but are now designated “drilled but uncompleted” (DUCS). As gas prices have spiked over the last year, the number of DUCS has decreased by over 40 percent, meaning there are more existing wells progressing toward operation, he said, proving that there has been a drive to increase supply where possible, in spite of the challenging landscape the Biden administration created.

During the pandemic, multiple complications converged to create a backlog in Applications for a Permit to Drill, such as labor shortages, supply chain issues, Covid restrictions limiting the number of people allowed on an oil rig, and more. To expect companies to expand and expedite production immediately is unreasonable, Padgett said. Even if an APD has been approved, “that doesn’t mean production starts that day, that’s why BLM provides up two years for a company to actually start producing on a particular well,” he said.

While there’s little evidence that American energy companies are price gouging by intentionally limiting supply, as Psaki and Biden have implied, “there’s a lot of evidence that Biden administration policies have been detrimental to oil production supply in this country,” Padgett claimed. “The simple fact that we’re seeing less incentive to enter and produce in this market when you know that Biden administration is going out of its way to be unfriendly to oil production.”

This past January, the Biden administration also took half of the 23 million acres of federal land in National Petroleum Reserve Alaska “off the table” for drilling, Padgett added.

The U.S. is producing approximately one million fewer barrels of oil a day than in 2019, when the pandemic hit, and production had been ramping up. About 700,000 barrels that year were imported each day from Russia. Those imports have since been banned as part of the sanctions response to the Ukraine invasion.

Another member of Sullivan’s staff said that if the U.S. could resume its old production patterns, we would be producing 300,000 more barrels a day to cushion the U.S. amid the current energy crisis, but that’s been inhibited by the Biden administration’s policies.


IEA: Large Scale Oil Supply Disruptions Are Looming
Irina Slav, OilPrice.Com, March 16, 2022

  • IEA: large-scale supply disruptions are increasingly likely as a result of sanctions on Russia.
  • IEA: Global oil demand growth will decline due to a slowdown in economic growth.
  • The IEA revised down its oil demand estimates by 1.3 million barrels daily for the rest of the year

There are likely to be large-scale oil supply disruptions because of the sanctions that could reduce Russian oil exports, the International Energy Agency said in its March Oil Market Report published on Wednesday.

The agency also forecast that global oil demand growth will decline due to a slowdown in economic growth driven by the latest surge in commodity prices and Western sanctions against Russia.

“From April 3 mb/d of Russian oil output could be shut in as sanctions take hold and buyers shun exports,” the IEA said in its latest report.

Based on these projections, the IEA revised down its oil demand estimates by 1.3 million barrels daily for the rest of the year, which would mean a 950,000-bpd decline in the annual rate of oil demand growth.

“The implications of a potential loss of Russian oil exports to global markets cannot be understated,” the IEA wrote.

“Russia is the world’s largest oil exporter, shipping 8 mb/d of crude and refined oil products to customers across the globe. Unprecedented sanctions imposed on Russia to date exclude energy trade for the most part, but major oil companies, trading houses, shipping firms and banks have backed away from doing business with the country.”

Alternative suppliers that can step in and fill the void are few and not necessarily willing to do it, the report also noted. OPEC+ is sticking to its original agreement of a gradual ramp-up of production, and Iran’s return to international oil markets could take months. Even if a new deal is agreed, the IEA said, it would take six months for Iran to boost its production by 1 million bpd, which is a third of potential Russian oil output losses.

“The current crisis comes with major challenges for energy markets, but it also offers opportunities,” the IEA noted. “Indeed, today’s alignment of energy security and economic factors could well accelerate the transition away from oil.”

At the same time, the IEA said it would be releasing advice on how to reduce oil demand more speedily later this week.


USA NatGas Risks Busting at the Seams
Andreas Exarheas, Rigzone, March 16, 2022

U.S. natural gas production risks busting at the seams with infrastructure constraints already impacting Northeast production and Permian constraints expected to appear in 2023.

That’s what a BofA Global Research report sent to Rigzone on Tuesday stated, adding that, entering 2023, it may be necessary to throttle back production growth in order to avoid an oversupply.

“Increased LNG exports has been one of the largest drivers of demand growth over the last several years,” the report stated.

“However, no new facilities will come online in 2023, the first year without an increase in capacity since exports started in 2016,” the report added.

The BofA Global Research report forecasts that U.S. L48 production will grow four billion cubic feet per day year on year in 2022 and three billion cubic feet per day year on year in 2023, “driven by gains in the Permian and Haynesville”.

“All said, we expect output to reach 99 billion cubic feet per day by the end of the year, up three billion cubic feet per day from December 2021 levels,” the report stated.

Project FIDS

The tight global gas market should help encourage additional U.S. liquefaction projects to receive a Final Investment Decision (FID), according to the BofA Global Research report. However, the timeline to construction of any new facility is at least two years, the report noted.

“Thus, any significant increase in U.S. export capacity, beyond what is currently under way, would most likely be 2025+,” the report stated.

“That said, there are currently 13 U.S. liquefaction projects … that have received DOE and FERC approval, but have not made a FID. We expect the current global gas environment to push several of these projects over the finish line,” the report added.

US LNG Cargoes

According to the U.S. Energy Information Administration’s (EIA) latest Short Term Energy Outlook, U.S. liquefied natural gas exports averaged 10.9 billion cubic feet per day in February, down from 11.2 billion cubic feet per day in January.

“Similar to last year, U.S. LNG exports in February were limited by fog in the Gulf of Mexico that affected vessel traffic,” the EIA STEO noted.

In the STEO, the EIA said it expects high levels of U.S. LNG exports to continue in 2022, averaging 11.3 billion cubic feet per day for the year. The EIA highlighted in the STEO that this is a 16 percent increase from 2021.

Many U.S. LNG cargoes were delivered to Europe last month, the STEO revealed. It noted that inventories in the area are lower than the five-year average and stated that potential supply disruptions related to the conflict in Ukraine are a concern.

“Although Europe’s inventories are low, the additional LNG imports, as well as a mild winter, are helping bring inventories closer to the five-year average than they were at the beginning of the winter,” the STEO stated.


Australia unveils $360m in critical minerals funding to offset China dominance
Reuters, Mining.Com, March 16, 2022

Australia announced almost A$500 million ($360 million) in funding to boost the output of critical minerals, aiming to diversify supply for its allies and counter China’s dominance of the global market.

Prime Minister Scott Morrison unveiled the funding for a slew of projects in Western Australia on Wednesday and said the state would become a powerhouse for Australia’s allies.

“Recent events have underlined that Australia faces its most difficult and dangerous security environment that we have seen in 80 years. The events unfolding in Europe are a reminder of the close relationship between energy security, economic security, and national security,” he told reporters.

A meeting of the Quad group leaders of Australia, the United States, Japan, and India agreed in Washington in September to improve supply chain security for rare earth. 

“China currently dominates around 70 to 80 percent of global critical minerals production and continues to consolidate its hold over these supply chains. This initiative is designed to address that dominance,” said Angus Taylor, minister for industry, energy, and emissions reduction.

Diplomatic relations between Australia and China are strained, with Canberra describing trade sanctions imposed on Australian agriculture and coal by Beijing in response to political grievances as “economic coercion”.

Critical minerals are used in smartphones, computers, rechargeable batteries, and electric cars as well as defence and space technology.

Related Article: The 50 minerals critical to US security

Projects to be funded include the second rare earth separation plant to be built outside China, a battery material refinery, and a vanadium processing plant. Funding will also be provided to commercialise government research and bring new companies to market.

Some A$200 million will also be included in this month’s budget for grants to bring more critical minerals projects to market. Australia has already made A$2 billion in financing available to build the industry.

Australia produces half the world’s lithium, is the second-largest producer of cobalt, and is the fourth-largest producer of rare earths.

Diversifying resources exports will strengthen the Australian economy, officials also said.

Australia’s resources and energy exports are worth A$348.9 billion, with iron ore shipped from Western Australia to China the nation’s biggest export earner.

The funding for critical minerals follows an announcement by Morrison on Tuesday that Australia will build a A$4.3 billion naval dry dock in Western Australia to maintain navy ships and nuclear submarines visiting Australia from allied nations, as well as those it will acquire under the AUKUS defence agreement with the United States and Britain.

China has criticized AUKUS and the Quad as Cold War constructs “targeting other countries”.


Alaska’s revenue forecast, foundation of the state budget, is billions higher as oil prices rise
James Brooks, Anchorage Daily News, March 15, 2022

Forecasters at the Alaska Department of Revenue have raised the state’s two-year forecast of oil revenue by $3.6 billion, Gov. Mike Dunleavy said Tuesday. At present levels of spending, the forecast would create a multibillion-dollar budget surplus.

“It’s actually really good news,” Dunleavy said, urging lawmakers to approve a large Permanent Fund dividend and to save much of the surplus.

State legislators, who rely on the annual spring forecast to write Alaska’s budget for the coming year, were enthusiastic but cautious. Global oil prices have been running above the state’s prior predictions, then surged after the Russia invasion of Ukraine. That surge has ebbed, but prices remain high.

“I think it’s good to be more conservative when we’ve got these optimistic numbers,” said Rep. Neal Foster, D-Nome, and co-chair of the House Finance Committee.

Each spring, Alaska lawmakers set the state’s budget for the upcoming fiscal year, which begins July 1. The revenue forecast determines how much money is available to spend. Any differences between the forecast and what actually happens are reconciled in the following year.

In Fiscal Year 2023, which starts July 1, the new forecast is for $8.33 billion, up $2.4 billion from a forecast in December. In the current fiscal year, which ends June 30, state revenue is expected to be $6.95 billion, an increase of $1.2 billion from the state’s prior estimate.

Each of these figures is far above what the state has spent in the recent past. Last spring, the Alaska Legislature approved a budget of $5.3 billion, and lawmakers expected that they would need to spend from savings to pay for part of that figure.

Now, they’re looking at a surplus and the possibility of a special energy rebate or supplemental Permanent Fund dividend.

The House Finance Committee, which had been expected to advance a draft of the state budget in early March, paused its work for two weeks as it awaited the new forecast.

With the forecast in hand, Foster said the committee will introduce a new version of the budget on Wednesday.

Foster, Dunleavy, and others said there’s cause for caution as the budget process begins.

“We don’t know what tomorrow is going to bring. We don’t know what next week is going to bring,” Dunleavy said.

The Crude Oil Volatility Index, which attempts to quantify the oil market’s past and expected swings, stood Tuesday at higher-than-normal levels last seen at the start of the Omicron COVID-19 wave and the 2020 presidential election.

“Let’s not live in a state of high oil euphoria, when all of our forecasts are for lower numbers than that,” said Sen. Bert Stedman, R-Sitka, referring to forecasts from the Federal Reserve Bank of Dallas and the U.S. Energy Information Administration.

Alaska’s oil-revenue forecast is based on a five-day window of oil market prices. The period used for the latest forecast began Wednesday when prices exceeded $120 per barrel.

“If they would have that done that two weeks ago, or a month ago or three, or if they made it six months later, it would have been totally different,” said Stedman’s lead budget aide, Pete Ecklund.

The spring forecast estimates oil prices at $101 per barrel, an increase of $30 from December. Stedman said members of the Senate Finance Committee want to use a more conservative figure.

“At the table here, we’ve been having conversations of the FY23 budget and looking at like $80 going forward, versus $101,” he said.

At $80 per barrel, the state would collect about $6.7 billion in FY23, according to a price sensitivity chart published last year by the Department of Revenue.

Stedman suggested that if prices run higher than that, the state could save the result and spend later, if wanted.

Foster said leading members of the House have a similar view.

“If we have money at the end of the day, that goes into savings, and there’s no harm in that,” Foster said.