Today’s Key Takeaways: Shell’s 13-year journey from oil discovery to production shows why oil doesn’t ramp up quickly. High premiums for natural gas in Europe led LNG tanker to make U-turn in Pacific Ocean. Treasury Secretary: Too early to tell on Cryptocurrency. Arctic order destabilized by Russia’s war on Ukraine.
NEWS OF THE DAY:
Sen. Murkowski is hosting an event in Anchorage to help Alaskans access federal infrastructure funding
Anna Rose MacArthur, KYUK, April 10, 2022
In November 2021, President Joe Biden signed into law the $1.2 trillion Infrastructure Investment and Jobs Act. The bill is expected to make billions of dollars available to Alaska over the next five years, if the money is applied for.
Alaska Republican Sen. Lisa Murkowski helped negotiate the terms of the bill. On April 11, Murkowski is hosting a free event in Anchorage for the public to learn more about it. She wants to make sure that Alaska entities know how to access that money and know about the funding opportunities it involves. Federal representatives and officials from state agencies will be available to answer questions and provide information.
The event is on Monday, April 11 from 10 a.m. to 4 p.m. at the Dena’ina Civic and Convention Center in Anchorage. Find an event schedule on Murkowski’s website.
OIL:
Shell’s 13-year journey from discovery to first oil shows why U.S. output remains flat
Paul Takahashi, World Oil, April 8, 2022
Questioned by U.S. lawmakers this week, chief executives from the nation’s biggest oil companies took great pains to explain why they haven’t raised production fast enough to tame skyrocketing energy prices.
For Shell Plc’s highest-ranking U.S. manager, Gretchen Watkins, the answer was 1,600 miles (2,600 kilometers) southwest of Capitol Hill, floating in a shipyard near Corpus Christi, Texas. As Democratic lawmakers grilled Watkins and other executives about high gasoline prices, hundreds of workers in red and tan coveralls were putting the finishing touches on the Vito offshore oil platform. The 20-story production facility that weighs as much as a battleship is expected to begin pumping the equivalent of up to 100,000 barrels daily from beneath the Gulf of Mexico later this year.
By then, the multibillion-dollar project will have taken 13 years to evolve from the initial discovery of the Vito oilfield to production, underscoring the challenges of bringing offshore crude to market.
Unlike shale wells that cost $10 million or $15 million to drill and mere months to yield oil, offshore projects cost billions and rarely come online in less than a decade. This difference in business models explains why it’s so difficult for oil giants such as Shell to quickly ramp up production when geopolitical disruptions like Russia’s war in Ukraine upend markets. With crude fetching more than $100 a barrel, and retail gasoline prices soaring, politicians and consumer advocates want to know why the oil industry isn’t pumping faster.
“The 1.7 million barrels per day of production we have from the Gulf of Mexico right now is because of decisions made five, 10 years ago,” said Erik Milito, president of the National Ocean Industries Association, which represents the offshore oil and wind industries. “It takes longer to bring offshore projects and barrels to market, but you get massive volumes for long periods of time.”
Lawmakers’ calls to boost oil production come as the offshore sector is still recovering from the ascendance of shale more than a decade ago and more recent back-to-back oil busts. In the past half decade or so, drillers laid off thousands of workers and scrapped scores of rigs and other gear, in part because the oil industry’s attention shifted to shale fields that are cheaper and quicker to harvest.
The Biden administration’s campaign pledge to rid the world of fossil fuels to counter climate change has only complicated matters. White House efforts to curb leasing and drilling permitting in federal waters has crimped the flow of investment into the Gulf of Mexico, a key factor in the energy crunch now underway, Milito said.
Raising production rapidly is especially challenging for Shell as it moved aggressively in recent years to transition away from fossil fuels. The London-based company last year sold its shale holdings in the prolific Permian Basin and announced that its oil production had already peaked and will decline annually from here on out.
Shell, which competes with BP Plc for the title of top U.S. Gulf oil producer, has pledged to use the proceeds from its lower-emissions offshore oil business to help fund its energy transition and investments in wind and solar.
The Gulf of Mexico has historically been a stable source of domestic crude, producing 1.2 million to 2 million barrels daily over the past 20 years. A barrel of Gulf of Mexico crude has about half the carbon footprint of shale oil from the Permian Basin, in large part because the practice of burning off excess natural gas is much less common, according to S&P Global Platts.
“The Gulf of Mexico is a strong example of a strategic national asset that can play a key role in stabilizing supply and accelerating the transition to net-zero carbon emissions,” Watkins told lawmakers on Wednesday. “Oil produced from the Gulf of Mexico has one of the lowest greenhouse gas intensities in the world.”
Despite the lower emission benefits of offshore oil, the era of mega-projects and frenzied deepwater exploration in the Gulf of Mexico may be over. When Shell began planning Vito a decade ago, the platform was expected to be similar to Appomattox, the company’s largest Gulf installation and capable of pumping 175,000 barrels a day for 40 years.
The Vito project was close to getting the go-ahead in 2014 when Saudi Arabia flooded the global market with cheap crude to hurt U.S. shale producers. The platform was redesigned in 2015 to slash the price tag by 70 percent. When Vito departs coastal waters in June to finally tap the subsea field, it will be one-third the size of Appomattox and designed to work for 25 years.
“We designed an F-150, which can do 80 to 90 percent of what an F-350 can do,” Kurt Shallenberger, Vito’s project manager, said, referring to the iconic pickup trucks that are ubiquitous in Texas. “You don’t design for a single cycle; it has to be affordable over the long cycle. If you look at the energy transition, we do think that that price is not going to stay where it is today.”
GAS:
LNG Tanker Takes $2M U-Turn In Pursuit Of Higher Gas Prices
Bloomberg, Sergio Chapa, April 10, 2022
Hefty April premiums for natural gas in Europe prompted LNG tanker British Listener to make an abrupt U-turn in the Pacific Ocean after spending two weeks at sea on a path to Asia.
The BP-chartered ship left Freeport LNG in Texas on March 21, crossed the Panama Canal, and was southwest of Mexico when it changed course on April 1, ship-tracking data compiled by Bloomberg shows. Since then, the tanker went back across the Panama Canal and is now headed to Gibraltar, data from Marine Traffic shows.
Such tanker diversions are not common and require paying $1 million in tolls to travel twice through the Panama Canal. But a similar turnaround happened earlier this winter when European natural gas prices began to command a large premium over more traditional markets in Asia. As war continues in Ukraine and concerns linger about Russian supplies, those economics have roughly two-thirds of all U.S. LNG cargoes heading to Europe.
“This is in line with our forecast for record high European LNG imports this year and backed by the prompt-month TTF price trading at $3.50/mmbtu above JKM thus far in April,” said Peter Rosenthal, head of power and North American gas at Energy Aspects.
MINING:
Yellen nods to crypto’s disruptive pressure, but says sovereign money is king
Bradley Dale, Axios, April 11, 2022
For a thoughtful prognosis for cryptoin the developed world, you could do worse than to read the Secretary of the Treasury’s speech on digital assets at American University last week.
Why it matters: Yellen seemed to acknowledge that cryptocurrency has put pressure on the global financial system to speed itself up and cut its costs to end users — without any suggestion, however, that the system can’t fix itself.
- What they’re saying: “People have a wide range of views when it comes to digital assets,” Yellen said in her remarks Thursday. To say the least about the most.
Details: She highlighted two key shortcomings in finance as we know it, but then she also drew a very firm line.
Settlement. “Although new technologies have made our financial system more efficient, for most Americans, many transactions still take too long to settle,” she said.
- We’ve all had those moments when we send money somewhere, the other party doesn’t see it soon enough, and headaches ensue. Such delays cost the financially distressed the most, as the secretary notes.
- Bitcoin can settle any amount, anywhere, in about 10 minutes. Basically, every cryptocurrency invented since bitcoin can do it even faster.
Yes, but: Crypto’s ascent might simply be the kick in the pants needed to speed up the existing system.
- For example, the Fed will soon release a turbo boost called FedNow — a system to make traditional transfer payments almost instant, blunting one of the main appeals of cryptocurrencies.
International payments. It’s pricey for money to cross national borders, and it’s even pricier for people transacting with the developing world.
- Blockchains impose the same transaction costs no matter what nation a user lives in, and they have no concept of national borders.
Yes, but: “Will the technology live up to that promise? I think it’s too early to tell,” Yellen said. “Issues like processing time, cost and technological barriers to access will need to be overcome.”
Reality check: The secretary has no interest in conceding one core point to crypto.
- “Sovereign money is the core of a well-functioning financial system,” she said.
- In other words, nation-states — not robots on the internet — are the right stewards of money.
- Countering the Bitcoin-as-protest argument, Sec. Yellen supplied a detailed history of money in the U.S., arguing that it has developed in a largely grassroots process from which emerged the most useful financial system in the world.
The bottom line: “When regulation fails to keep pace with innovation, vulnerable people often suffer the greatest harm,” she said.
- Whether you love crypto or hate it, you can read that line differently. Any which way, you’re probably not completely wrong.
POLITICS:
Arctic leaders unsure what Russian aggression means for the region’s future
Zachariah Hughes, Anchorage Daily News, April 10, 2022
Russia’s invasion and military campaign against Ukraine has destabilized the Arctic order, leaving many who focus on the region to wonder what comes next.
“My view of the future of the Arctic changed on Feb. 24,” said Ambassador David Balton, who leads the U.S.’s Arctic Executive Steering Committee.
“Since Feb. 24, I’m worried. Because some of what made the Arctic special, made it exceptional seems not at hand at the moment. And we need to find a new way forward,” Balton said during a panel discussion Friday.
Policy experts and stakeholders from around the world, along with high-ranking diplomats from seven of the eight Arctic nations, gathered in Anchorage on Thursday and Friday for the Arctic Encounter Symposium. The conference is the U.S.’s largest policy event focused on the Arctic each year and, after years convening in Seattle, was held in Alaska for the first time.
In the days of panel discussions and casual mingling, a recurrent theme came into focus: Russia’s war in Ukraine and the resultant backlash and sanctions have upended the previous geopolitical order in the Arctic and are ushering in a new phase for the high north. There are major implications that will have direct impacts on the lives of Alaskans, Americans, and residents all across the Arctic in the coming years, ranging from defense spending to trade to travel.
Balton called the current moment an inflection point for the world, comparable to the end of the Soviet Union or the Sept. 11 attacks, with the potential to reorganize pillars of the world order.
“Maybe there are things we can take from this crisis and make better than before,” he said.
‘Putin is unifying us’
The Arctic has been militarizing for years, with countries moving more military hardware and capacity toward the region for at least a decade. But the current crisis is accelerating that trend.
Nordic countries are increasing their defense budgets and purchasing advanced American weapons systems, and among those not formally part of the North American Treaty Organization, there is a growing interest in joining, according to diplomats attending the symposium.
“Are we worried? Yes, we’re worried,” said Norwegian Ambassador to the U.S. Anniken Krutnes. “We haven’t seen a spillover so far, but I don’t think you can disconnect the North Atlantic and Arctic from what’s happening in Ukraine.”
Norway is one of the countries that has ramped up defense spending, including purchasing new surveillance aircraft and submarines, as well as 52 F-35 fighter jets from the U.S.
“That’s where the oil money goes,” Krutnes said wryly.
“It’s for deterrence, it’s for defensive purposes,” she said.
“This genocide that we’re seeing in Ukraine today is a sore and sad disappointment,” said U.S. Republican Sen. Lisa Murkowski, who spoke at a press conference Friday alongside diplomats. “These Arctic neighbors need to stand shoulder to shoulder.”
“What is happening is that instead of dividing us, Putin is unifying us in Finland,” said Finnish Ambassador for Arctic issues Tiina Jortikka-Laitinen. She added that for the first time ever, there is a majority of support among Finns for joining NATO — something that elicited enthusiastic clapping from West Virginia Democratic Sen. Joe Manchin, who was on hand with Murkowski for part of the conference.
Finland has also purchased dozens of F-35s from the U.S., part of a large rise in its domestic budget for defense. The spending is particularly notable given that Finland shares a border with Russia.
“We have had very tight cooperation between our borders,” Jortikka-Laitinen said. “That is all frozen. There’s nothing between our countries right now. It is a new situation.”
‘He’s weaponized energy’
The chilled relations with Russia are reconfiguring trade and energy markets among Arctic nations.
“The government of Greenland has decided to impose sanctions. And there is a price tag to it,” said Minister Kenneth Høegh, head of Greenland representation in the United States and Canada. Greenland annually conducted billions of dollars in trade with Russia, which has now halted.
“That is something we are going to feel, quite hard,” Høegh said.
As a result, Greenland is looking at Canada and New England for expanded trade relations.
“We hope that we can find new markets in terms of what we’re losing,” Høegh said.
Europe relies heavily on Russia for energy, importing huge volumes of oil and gas. That’s meant that even as governments there condemn and sanction Russia’s violence in Ukraine, they continue paying enormous amounts of money for hydrocarbons.
The second-biggest energy supplier to the continent is Norway, and Ambassador Krutnes said Europeans do not currently want the country to slow down oil and gas production.
“We are doing a green shift. But for the next decade we still need fossils,” Krutnes said.
A European move away from Russian energy supplies may also lead to increased production in the U.S., including on Alaska’s North Slope.
[President Biden banned the importation of Russian crude. What does that mean for Alaska?]
“This is Putin’s war,” Manchin said. “He’s weaponized energy.”
Manchin spoke about the need for an American “all-in energy policy” that keeps the U.S. energy independent and has the potential to benefit and assist allies.
“That’s what we’re striving for,” he said.
‘We cannot put climate change on the back burner’
Originally, Russia’s ambassador to the U.S. was scheduled to attend the Arctic Encounter Symposium, but he notified organizers he was unavailable just days before Russia’s invasion began, according to Arctic Encounter executive director Rachel Kallander.
The country’s absence from diplomatic circles and pariah status in global politics means that ongoing scientific research and policy collaboration in the Arctic is uncertain, just as climate change is transforming the region.
“We cannot put climate change on the back burner,” said Icelandic Ambassador to the U.S. Bergdís Ellertsdóttir. “We need to find ways to finish the work without Russia.”
After Russia’s invasion of Ukraine began, seven of the eight members of the Arctic Council, an intergovernmental entity that fosters collaboration among Arctic nations, announced a pause on activities. U.S. State Department Coordinator for the Arctic Jim DeHart said the challenge ahead is how the council can keep collaborative scientific research efforts from withering.
“I think the overarching concern is how do we move forward in a way that doesn’t permanently harm the council,” DeHart said.
Russia is about half of the Arctic. Without them, there will be huge gaps in emergent understandings of sea-ice retreat, fish stocks, navigation routes, weather patterns and other areas of study.
“The uncertainty is really hard to grapple with here,” said Dalee Sambo Dorough, international chair of the Inuit Circumpolar Council. “I don’t know what the solution is.”
With climate change accelerating in the Arctic, diplomats and researchers agree that the crisis in Europe means yet another major variable to contend with in the region going forward.
“I see the Arctic 20 or 30 years from now as a much busier place. But also less predictable,” DeHart said. “We have to do something that democracies aren’t very good at, which is plan.”