Today’s Key Takeaways: Fast-tracking energy projects on the docket for Congress. Is AK crude oil production ready to bounce back? The race for U.S. lithium happening in NV. AK primary results led some candidates to quit. Can ENI make Russian gas irrelevant by 2025?
NEWS OF THE DAY:
Manchin Plan to Fast-Track Energy Projects Heads for Showdown
Ari Natter, Jennifer Dlouhy, Rigzone, September 7, 2022
Congress is headed for a showdown this month over Democratic Senator Joe Manchin’s plan to fast-track federal approvals of energy projects ranging from natural gas pipelines to wind farms.
Manchin secured a pledge from congressional leaders to advance the legislation, but the proposal is already drawing fierce opposition from environmental activists and progressive Democrats, and the outcome is far from certain.
The deal, which was blessed by the White House, could deliver speedier approval for Equitrans Midstream Corp.’s stalled $6.6 billion Mountain Valley gas pipeline crossing Manchin’s home state of West Virginia. It also may expedite approvals for new clean energy projects spurred by the climate law enacted last month. It could also make changes to bedrock environmental laws, by putting two-year time limits on project reviews and limiting the power of states in Clean Water Act approvals.
If the legislation is passed, it would mark a big win for the oil and gas industry, which has long sought to accelerate federal permitting and scale back environmental reviews that can lead to years of delay and hundreds of millions of dollars in extra costs.
But even some of the measure’s champions doubt it would achieve the sweeping permitting reform that’s been promised. And it’s not clear that the legislation, which could be unveiled as soon as this week, will make it through Congress. Despite Senate Majority Leader Chuck Schumer’s promise to attach the measure to government-funding legislation or some other must-pass bill, some Democrats are deeply opposed.
“It’s basically an industry wish list that’s been around forever,” Representative Raul M. Grijalva, an Arizona Democrat who chairs the Natural Resources Committee, said in an interview. “I don’t feel compelled to back this up simply because it was a deal that was made in the Senate.”
Other Democrats insist they aren’t bound by the Schumer-Manchin agreement. “To pretend that all of our hands are tied because Chuck Schumer and Joe Manchin cut a deal?” said Representative Jared Huffman, a Democrat from California. “Sorry, I don’t think it works that way.”
Some Republicans, angry that Democrats jammed Manchin’s climate bill through the Senate on party lines, are also vowing to oppose the legislation even though it aligns with long-held energy industry priorities. Others say the legislation won’t achieve the permitting overhaul that’s needed.
Early drafts of the legislation sought to impose limits on government reviews, shorten the amount of time the public can comment on some project analysis and require the president to give priority status to a list of at least 25 fossil fuel and mining projects.
The 303-mile (488-kilometer) Mountain Valley Pipeline is seen as a prime beneficiary. Although developers say the pipeline that crosses into Virginia is more than 90% complete, construction work stalled after a federal court rejected a necessary permit for a national forest crossing. Manchin has complained about the slowdown and advanced proposals to finish the project, including by possibly moving litigation over the pipeline to a Washington, D.C.-based federal court.
A summary circulated in recent days among Senate Democrats seen by Bloomberg emphasized the package wouldn’t weaken existing environmental statues. Instead, it cast the changes as critical to helping Biden achieve his climate and clean energy goals. For instance, the summary highlights how the measure would give federal regulators new authority to issue construction permits for power lines and transmission projects deemed in the national interest.
Past presidents and congresses have tried imposing deadlines on project reviews before — with mixed results — and it’s not clear this would dramatically accelerate the process. The legislation lacks teeth to force bureaucrats to move faster, and new deadlines might not be enforceable in court. Agencies also could stall official project reviews, effectively delaying the starting clock for analysis subject to new time limits.
Supporters of the legislation say that streamlined permitting is necessary to ensure that precious time to claim clean energy and advanced manufacturing tax credits under the climate law isn’t squandered waiting for federal authorizations. Expedited reviews can benefit renewable projects as well as onshore gas pipelines, they argue. Proposed offshore wind farms, for instance, must undergo reviews from numerous federal agencies in a process that can take years.
“Without some reform and without a better system in place, we are very worried about being able to take advantage of these historic tax credits,” said Heather Zichal, head of the American Clean Power Association, an industry trade group that supports renewable developers.
But environmentalists, many of whom are planning a Sept. 8 rally in opposition to the permitting reform deal steps away from the Capitol, counter that the reviews are as important now than ever.
“We’re about to have the biggest building spree this country has seen since the industrial revolution, and we would like to have some thoughtful planning,” said Abigail Dillen, president of the environmental advocacy group Earthjustice. “It doesn’t have to take forever, but it needs to be done well.”
OIL:
Keep Holding On – Is Alaskan Crude Oil Production On The Verge Of Bouncing Back?
Housley Carr, RNB Energy, LLC, September 6, 2022
The renewed focus on energy security — and the acknowledgment that the world will continue to rely on hydrocarbons for decades to come — may be breathing new life into an often-overlooked U.S. production area: Alaska’s North Slope. The state’s crude oil output is down to its lowest level since before the Trans-Alaska Pipeline System (TAPS) came online in 1977. But now federal regulators are moving toward final approval for ConocoPhillips’s $8 billion Willow project in the National Petroleum Reserve, and Australia’s Santos Ltd. and Spain’s Repsol have taken a final investment decision (FID) on the $2.6 billion first phase of their Pikka project between Willow and Prudhoe Bay. In today’s RBN blog, we discuss recent hydrocarbon-related developments in America’s Last Frontier.
As we said in The End?, our most recent blog on Alaskan crude oil, it’s been a tough few years — some would say decades — for producers in the 49th state. Back in the 1970s and ’80s, Alaska was seen as the next big thing for U.S. crude oil production. With the completion of the 800-mile TAPS pipeline from Prudhoe Bay to Valdez, AK, in 1977, Alaska North Slope (ANS) production took off, and by 1988, when Alaska’s output peaked at more than 2 MMb/d, the state not only accounted for one-quarter of total U.S. crude oil output (blue layer in Figure 1), but it also briefly knocked Texas off its perch as the #1 oil-producing state. Alaskan oil didn’t give the U.S. “energy independence” –– a rallying cry in the Ford, Carter, and Reagan years –– but it sure helped.
The picture turned gloomy, though. By 1995, Alaskan crude production had fallen to less than 1.5 MMb/d and by 2000 it was down to less than 1 MMb/d. The slide didn’t end there. Through the mid-2010s, production was hovering around 500 Mb/d, and lately it’s been averaging less than 450 Mb/d — or only about 4% of total U.S. output.
Alaska still has plenty of oil in the ground. But output has been falling due to a lack of sufficient investment to offset natural production declines. Investors have been shifting their focus to what they perceive to be more profitable alternatives, especially shale and tight-oil basins in the Lower 48. Alaska has also been set back by yo-yoing federal policies regarding further development of ANS reserves. And don’t forget “the ESG effect” — namely, increasing reluctance among many investors and lenders to support hydrocarbon-related initiatives, particularly in environmentally sensitive areas.
A number of major producers have been moving aggressively on this front, including BP, which in late 2020 sold its Alaska upstream assets and its ownership interest in TAPS to Hilcorp for $5.6 billion. That doesn’t mean investment in Alaskan crude oil production has come to a halt. Obviously, Hilcorp bought BP’s Prudhoe Bay operations, though it must be noted that Hilcorp’s stated corporate strategy is to acquire oil and gas assets that are late in their productive life and use innovative technologies to maximize the assets’ remaining value. In addition to Hilcorp’s ongoing efforts, there are at least two major North Slope initiatives in advanced stages of development: ConocoPhillips’s Willow project and Santos and Repsol’s newly sanctioned Pikka project.
We’ll begin with Pikka (pink-shaded area in Figure 2), which is located west of Prudhoe Bay (beige-shaded area) within the Nanushuk oil play — the biggest conventional onshore oil discovery in the U.S. in decades when Armstrong Energy and Repsol drilled a successful discovery well in 2013. (Oil Search acquired Armstrong’s Pikka leases in 2018 and merged with Santos in December 2021.) Phase 1 of Pikka has an estimated 397 MMbbl of proven and probable (2P) reserves (see our recent Square One for more on reserve estimates). Santos (the project’s operator, with a 51% ownership interest) and Repsol (with a 49% stake) said when they announced their FID on the $2.6 billion project on August 16 that they expect Pikka’s output to ratchet up to 80 Mb/d after production starts in 2026.
Santos said in its announcement that global markets are looking to diversify their oil (and natural gas) supplies away from Russia, and that the Pikka project will be able to make use of existing (and underutilized) North Slope infrastructure, especially TAPS (purple line in Figure 2). As we’ve discussed in earlier blogs about Alaska production, the 48-inch-diameter pipeline was designed to transport up to 2.1 MMb/d but in recent years has been transporting only a small fraction of that, posing a number of operational challenges. (The short version is this: When the pipeline was running close to full capacity in the 1980s, the crude flowed quickly and stayed relatively warm. Now, with flows of less than 450 Mb/d, crude is flowing much more slowly and cooling off to low temperatures, a cause for worry — click here for details.)
Pikka’s operator also has indicated that the project will produce “low-carbon oil” and that the Pikka project itself will be net-zero (regarding Scope 1 and Scope 2 emissions) from the first day of oil production four years from now. Santos said that Pikka’s electrified field operations will minimize emissions and that the project’s developers had entered into memorandums of understanding with local, Alaska-native organizations to deliver carbon-offset projects. Finally, the operator estimated the project’s lifecycle breakeven oil price at $40/bbl and said that at a $60/bbl long-term price (in 2022 dollars) the project would enjoy a 19% internal rate of return (IRR).
ConocoPhillips’s $8 billion Willow project (blue-shaded area in Figure 2) is also located within the Nanushuk oil play, just west of Pikka and in the northeast corner of the National Petroleum Reserve. The company has said that the site has 600 MMbbl of recoverable reserves and that production would be expected to peak at 180 Mb/d. The E&P announced the project in early 2017 and has been working since then to advance Willow through the regulatory process. As you can see in the project’s regulatory timeline (Figure 3), the company secured a final environmental impact statement (EIS) and record of decision from the Bureau of Land Management (BLM) in the second half of 2020, but a federal court ruling the following summer led to the development of a draft supplemental EIS that was issued on July 8, 2022. Public comments on that report were due August 29.
ConocoPhillips said during the company’s August 4 earnings call that an FID won’t be taken until a final supplemental EIS and a supportive record of decision from the BLM are in hand — something that could happen late this year or early in 2023. The BLM noted that the draft supplemental EIS issued by the agency in early July includes a new option (Alternative E) that would reduce the footprint of the Willow project by removing two of the five proposed drill sites, including the northernmost proposed drill site and associated infrastructure in the Teshekpuk Lake Special Area (TLSA). TLSA is an ecologically important wetland that hosts thousands of birds and the Teshekpuk caribou herd. During its August 4 call, ConocoPhillips said that it sees Alternative E as “a good path forward” that also addresses the concerns about Willow expressed by the U.S. District Court for the District of Alaska in its August 2021 ruling (see Figure 3 timeline). If all goes well, production at Willow could start as soon as 2027.
Another ANS development is also under way, though it is still in the early stage. Australia’s Energy 88 said recently that it plans to drill an exploration well on its Icewine East acreage (aqua triangle in Figure 2) in 2023 now that an independent analysis has found the assets could hold more than 1 billion barrels (1,000 MMbbl) of recoverable oil from multiple zones. Whether that turns into another Willow or Pikka remains to be seen, but the Santos/Repsol and ConocoPhillips projects alone would add 260 Mb/d of Alaskan production later this decade — and increase the state’s crude oil output to a level about 60% higher than it is today. And that suggests that Alaska producers, who have been through a lot the past few decades, should “keep holding on.”
GAS:
The Oil Giant Planning To Make Russian Gas Irrelevant By 2025
Charles Kennedy, OilPrice.Com, September 7, 2022
Italian Eni has vowed to fully replace Russian gas by 2025 thanks to major developing LNG projects from Africa to the Middle East and major discoveries in the Eastern Mediterranean.
Eni’s Chief Operating Officer Guido Brusco told attendees of the Gastech conference in Milan on Tuesday evening that the Italian energy giant “plans to fully replace Russian gas by 2025 helped by east med fields”.
At the same time, deputy COO Cristian Signoretto told the conference that Eni would also invest nearly $4.5 billion every year for the next three years in upstream activities in several venues, including Qatar, Congo, Egypt, and Algeria.
“We are fully committed to invest 4.5 billion per annum in the upstream to bring on line new gas supplies,” reporters cited Signoretto as saying, particularly referencing LNG projects in Africa and the Middle East, and also indicating that Indonesia will be a key investment arena.
From Algeria, Eni said, gas would double to 18 billion cubic meters per year by 2024. From Northern Europe, Eni plans to get an additional 4 billion cubic meters of gas.
In its 2022-2025 strategic plan, unveiled in February, Eni said it would invest seven billion euros per year on average in its different businesses.
The gas riches of the Eastern Mediterranean will also play a role in Eni’s plan to save Europe from Russian gas.
In late August, Eni, and its partner, French TotalEnergies, confirmed a major gas discovery in a wildcat well in the Eastern Mediterranean, offshore Cyprus. The Cronos-1 well, in Cyprus’ deepwater Block 6, may have 2.5 trillion cubic feet of gas in place, based on preliminary estimates, and the partners are drilling another well in the same block. And back in 2018, Eni also hit success with the Calypso-1 well in Block 6, with that well has been confirmed as an extension of Egypt’s massive Zohr gas fields discovered in 2015.
MINING:
The race for US lithium hinges on a fight over a Nevada mineDaniel Moore, Battery Metals Digest, September 6, 2022
The high-desert mountain pass overlooking alfalfa fields and RV parks doesn’t look like a battleground that will shape the country’s clean energy future.
But when the rock samples here are pulverized, pulled apart and mixed with chemicals, they yield a metal increasingly seen as white gold: lithium, a critical ingredient for batteries used in electric vehicles, solar energy storage, and consumer electronics.
In early 2021, the Trump administration approved plans for a $1 billion open-pit mine here at Nevada’s Thacker Pass, in a swath of government-owned land that covers 9 square miles above the country’s largest lithium deposit. The Biden administration has since defended that decision.
Supporters say the mine built by Lithium Americas, a Canadian multinational, could produce enough lithium each year to match 2020’s total global output. They also argue that expediting US battery manufacturing will help the country shift away from fossil fuels while shrinking supply chains disrupted by the pandemic and Russia’s invasion of Ukraine.
But the project has run into fierce local opposition.
A judge is weighing a bid to block the mine brought by an unlikely coalition: a rancher who contends the operation will consume precious groundwater that sustains his herd; environmental groups that support electric vehicles but see the vast mining operation as too destructive; and tribal members determined to preserve the legacy, lifestyle, and land of their ancestors.
The outcome will ripple beyond this corner of Nevada. As the US Department of Energy implements a $7 billion battery supply-chain program and Congress’s climate bill rolls out tax credits for electric car makers, some see the state as ground zero for the fledgling industry. It already hosts the nation’s only other lithium mine, with plans for more.
“We can become the Lithium Valley here, based on everything else we have,” said Dev Chidambaram, an engineering professor at the University of Nevada, Reno, who started one of the country’s first battery and energy storage academic programs. “It’s better we do this, rather than somebody else.”
Those efforts are getting boosts from Washington. The $369 billion climate-and-tax law enacted in August includes tax credits for electric vehicles that, by the end of 2023, source 40% of their battery minerals from North America or US trade partners. That portion increases to 80% of battery minerals by 2027.
In May, Energy Secretary Jennifer Granholm pledged to support efforts to streamline permitting of mines. The Energy Department’s revamped Loan Programs Office is also weighing a loan for Lithium Americas.
POLITICS:
Legislative primary results encouraged some Alaska House and Senate candidates to quit
Alaska’s new top-four primary didn’t eliminate anyone from running in November, but some candidates took themselves out
Alaska’s new top-four primary election didn’t eliminate a single candidate for state House or Senate, but several candidates withdrew from November’s general election before a Monday deadline, citing their performance in the primary.
Most of the state’s House and Senate races now have fewer than three candidates, the minimum needed to trigger ranked-choice voting for those seats. The state’s new primary election system allows up to four candidates, regardless of party, to advance through the primary and to November.
Among 19 state Senate races, eight have at least three candidates. Of the 40 state House races, there are 14 with at least three options.
In other races, withdrawals have changed the blend of candidates, altering races that will determine partisan control of the state House and Senate.
That control will determine what legislation advances or fails over the next two years, but candidates say it’s too early to tell how the changes, coming amid a brand-new electoral system, will affect their races.
“We’re all guinea pigs,” said Ashley Carrick, a Democratic candidate for House District 35 in Fairbanks. “So, we don’t really know yet what’s going to be a vote-splitting situation and what’s going to help candidates. I think all of the candidates in similar situations are asking themselves those questions.”
Among the races with notable withdrawals:
- In Anchorage, Alaskan Independence Party candidate Tim Huit withdrew, leaving Republican Kathy Henslee and Democrat Andy Josephson to compete in House District 13, whose boundaries were significantly redrawn by the redistricting process. Henslee had a one-vote margin over Josephson in the primary.
- Also in Anchorage, Democrat Jennie Armstrong and Republican former legislator Liz Vazquez will have a head-to-head race after Republican Joel McKinney and Constitution Party candidate Rick Beckes withdrew.
- Two East Anchorage state House districts became head-to-head matchups between Democrats and Republicans because of withdrawals. Both races are expected to be close.
In Eagle River, four Republicans had been competing to replace Sen. Lora Reinbold, R-Eagle River. After the primary, two candidates withdrew, leaving incumbent Reps. Kelly Merrick and Ken McCarty to compete in November for a Senate seat.
Clayton Trotter, a University of Alaska Anchorage business professor, was one of the two candidates who withdrew. He finished the primary with 6.9% of the vote.
“If I had come out of the primary with 30% of the vote, I’d still be in. It’s that simple,” he said.
Because up to four candidates, regardless of party, may advance from the primary to the general election, Trotter could have stayed in the race and been on November’s ballot.
He said that made the primary “a well-defined poll” rather than something that winnowed the field of candidates.
But in his case, that poll helped him decide to drop out.
“It’s a strain on your family, it’s a strain on your budget, it’s a strain on your business relationships and just a strain to run for office,” Trotter said.
“If you have a reasonable probability of success, that’s one thing. But if it looks like you don’t have that reasonable probability of success, it just makes sense (to withdraw),” he said.
He said he will be supporting McCarty in the general election.
Joe Wright also withdrew from the Eagle River race. He received 11.3% of the vote and said redistricting played a role in his decision. Until late in the redistricting process, Eagle River could have been joined with another part of Anchorage, creating a better district for his politics. He’s decided to run for Anchorage Assembly instead.
Democrats and independents are watching the Eagle River race with interest. As a House lawmaker, Merrick was one of two Republicans who joined the House’s coalition majority.
She was twice censured by local Republicans for that decision but still received more than half the votes of local voters in the primary.
Democrats hope to create a coalition in the Senate next year, and they believe Merrick could increase their odds — though Merrick herself has been noncommittal and remained so when contacted for this article.
“I’m going to continue running a positive campaign focused on my record of delivering for Chugiak-Eagle River,” she said. “The primary results are encouraging that Alaskans want legislators that are willing to work together to get things done.”
In Fairbanks, five candidates registered for the primary election for House District 35, but nonpartisan candidate Tim Parker withdrew, saying that family issues prevented him from campaigning as much as needed.
That means Constitution Party candidate Kieran Brown will take his place. Brown had been slated to be the only legislative candidate eliminated by the top-four primary.
Two Republicans and Carrick, the Democrat, remain in the race.
Kevin McKinley, one of the Republicans, said that regardless of the number of the candidates in the race, “you’re still going to have a lot of the basics that are going to be pertinent: getting out there, meeting the people, campaigning. That part isn’t going to change.”
But when it comes to ranked-choice voting strategy, that’s something campaigns are still figuring out, he said.
“Honestly, we’re going into uncharted territory,” McKinley said. “It’s a learning experience for everybody right now.”