NEWS OF THE DAY:
Hilcorp to resume drilling in Prudhoe Bay field on North Slope
Tim Bradner, Mat-Su Frontiersman, July 20, 2021
Hilcorp Energy has told state officials it will resume drilling of new wells in the large Prudhoe Bay field on the North Slope, where it is the field operator. Drilling was suspended in Prudhoe, as with most other fields on the slope, when oil prices crashed in 2020.
The move won’t increase the number of rigs working overall on the slope because Hilcorp is moving one of two rigs that were at work in the Milne Point field to Prudhoe Bay to restart the drilling there. The move will leave one rig still drilling in Milne, which Hilcorp also operates but is also 100 percent owner.
Still, the decision is important because it was made by the majority of the several Prudhoe Bay owners, reflecting a general consensus that conditions are improving for the industry. Decisions on spending money in Prudhoe Bay, the largest field on the slope, require consensus among its owners on specific drilling or development programs, and this is sometimes difficult to achieve because companies typically have different view on the profitability of a specific project.
“We are pleased to have support from our working interest partners to drill several Prudhoe Bay wells in the coming months, said Luke Saugier, Hilcorps’ Senior Vice President, Alaska.
“The last year has been challenging but I’m proud of what our team accomplished, including increasing production at Prudhoe Bay. We look forward to working with our Prudhoe Bay partners, ConocoPhillips, ExxonMobil and Chevron, to continue to safely and responsibly develop Alaska’s natural resources,” Saugier said in a statement.
Hilcorp is now one of the major Prudhoe owners after purchasing BP’s holdings in the field last June, and Hilcorp is known to be aggressive development activity. Other Prudhoe owners, however, are typically more conservative.
Overall, the number of drill rigs at work on the slope remain the same at six. ConocoPhillips has one rig working in the National Petroleum Reserve-Alaska at the company’s new GMT-2 project; one rig in the Alpine field drilling wells for Fiord West, a new project in that field, and one smaller “workover” rig in the Kuparuk River field working on rehabilitation of older wells.
Eni Oil and Gas also has one rig working in the Nikaitchuq field northeast of the Kuparuk River field, and plan to restart a second rig, now “stacked,” or stored in the field, later this year.
In contrast to Prudhoe, ConocoPhillips is sole owner in its NPR-A project as well as the Alpine and Kuparuk River fields, as is Eni at Nikaitchuq. Having a single owner usually results in faster decisions on projects.
Despite the improving conditions for the industry, Alaska Oil and gas jobs continue in the doldrums. They totaled 6,200 in June, down 900 from June 2020 and 3,800 from prepandemic June 2019, according to state Department of Labor and Workforce Development estimates for June released last Friday.
The difference from prepandmic 2019 reflects the producing companies’ decisions in 2020 to slash drilling, which is a high-employment activity. That happened when oil markets and prices collapsed in early 2020 due to the pandemic. However, while oil market demand and prices have shown strong recent recovery the industry had not yet resumed North Slope drilling significantly, which likely indicates continued caution by the companies.
OIL:
Even as Oil Plunges, Analysts Get More Bullish
Avi Salzman, Barron’s, July 19, 2021
Oil prices were falling hard on Monday, as investors fret about demand and see supply rising more quickly following an OPEC deal to restore production.
Despite the drop, the current setup looks as if it could help U.S. shale producers as long as they don’t make the same mistakes they did in the past. In fact, in the past few days analysts have gotten more bullish on names like oil service company Halliburton (HAL) and producer Ovintiv (OVV) even amid weakness in oil stocks.
Just a speed bump? Oil has taken a dive, but Goldman is still bullish
Natasha Turak, CNBC, July 20, 2021
- Fears over the surging delta coronavirus variant and a fresh supply boost agreement from OPEC+ sent oil prices tumbling down more than 7% as the trading week opened Monday.
- The drop was the steepest since March, a rude awakening for oil bulls who’d been enjoying the commodities’ highest prices in 2½ years.
- A less talked-about factor in the future demand picture is the world’s biggest oil customer: China.
A panic-induced sell-off in the oil market triggered by virus concerns has thrown the commodity’s upward march into question — but energy experts at Goldman Sachs don’t appear to be rattled.
Fears over the surging delta coronavirus variant and a fresh supply boost agreement from OPEC+ sent oil prices tumbling down more than 7% as the trading week opened Monday.
The drop was the steepest since March, a rude awakening for oil bulls who’d been enjoying the commodities’ highest prices in 2½ years.
International benchmark Brent crude was trading at $68.42 a barrel at 2:15 p.m. in London on Tuesday, down just over 7% from its Friday close of $73.59 a barrel.
Oil analysts were quick to stress the uncertain road ahead for demand as new waves of Covid-19 infections ― many among communities that have high vaccination rates ― threaten the recent months of economic recovery.
“The market is clearly unsettled about the demand outlook. And rightly so. The rise in delta variant cases is raising questions about the sustainability of demand,” Stephen Brennock, a senior analyst at PVM Oil Associates in London, wrote in a research note Tuesday entitled “Oil takes a beating.”
But analysts at Goldman Sachs led by Senior Commodity Strategist Damien Courvalin see the current setback as merely a speedbump, with little concrete reason for oil bulls to be worried.
Supply driving the bulls?
Oil balances globally are tighter than they were before, despite the agreement between OPEC and its allies over the weekend to cumulatively increase crude production by 400,000 barrels a day on a monthly basis beginning in August.
The International Energy Agency estimated a 1.5 million barrel per day shortfall for the second half of this year compared to its demand predictions in the absence of an OPEC supply deal.
And Goldman predicts the impact from delta to be in the neighborhood of “a potential 1 mb/d (million barrels per day) hit for only a couple months, and even less if vaccines prove effective at lowering hospitalizations in DMs (developing markets), the origin of most summer demand improvements,” as per its latest report.
Goldman’s call is in line with its previously bullish stance, which saw it forecasting Brent hitting $80 per barrel in the second half of this year.
The optimistic recovery outlook, paired with what it sees as a “slower” production ramp-up than expected from OPEC and tighter supply, so far means that “our constructive view on oil prices remains intact.” But the immediate-term demand hit from delta fears triggered a swap in the lender’s quarterly forecasts: It now expects Brent to average $75 per barrel in the third quarter of this year and only reach $80 by the fourth quarter.
“Oil prices may continue to gyrate wildly in the coming weeks given the uncertainties of the Delta variant and the slow velocity of supply developments,” Goldman’s analysts wrote.
Nonetheless, they continued, “we believe that the oil market repricing to a higher equilibrium is far from over, with the bullish impulse shifting from the demand to the supply side.”
The China factor
A less talked-about factor in the future demand picture is the world’s biggest oil customer: China. The recovery of the planet’s second-largest economy is showing signs of losing momentum, which would throw a major wrench in the trajectory for crude.
China’s crude imports were down 2% in May from the previous month and the lowest monthly volume since the year began, according to PVM Associates, falling to 9.77 million barrels per day. In July, they fell further to 9.55 million barrels per day, according to Refinitiv Oil Research. The country’s imports for the first half of 2021 were down 3% from the same period in 2020, and the first contraction of that level since 2013.
“China’s latest GDP data suggest the nation’s V-shaped economic rebound from Covid-19 is cooling,” PVM’s Brennock wrote. “More worryingly, recent customs data out of China is giving the market some mixed signals that are tilted to the bearish side.”
The confluence of uncertain demand due to the delta variant, cooling import levels from China and re-introduced supply from OPEC and its allies, known as OPEC+, suggest bearish signals to the market. But how long the uncertainty will last and whether national vaccine campaigns can offset the mutating virus will ultimately drive the demand picture. In the meantime, supply dynamics, particularly current inventory tightness, continues to give some fuel to the oil bulls.
“Questions are being asked whether the recently announced increase in OPEC+ supply will overwhelm the recovery in demand,” Brennock wrote. “Currently, this seems unlikely, although the evidence from the world’s top oil importing nation appears to favour the bearish narrative.”
GAS:
U.S. Natural Gas ‘Off to the Races’ on Strong LNG, Mexico Demand and Producer Discipline
Andrew Baker, Natural Gas Intelligence, July 20, 2021Bottom of Form
U.S. natural gas demand and prices are “off to the races,” driven by a convergence of supply and demand-related factors as the world emerges from Covid-19, IHS Markit’s Jack Weixel, senior director, said Monday.
Liquefied natural gas (LNG) exports to the global market, pipeline exports to Mexico, and capital discipline by upstream producers all have contributed to a “whiplash” in prices from below $2.00/MMBtu in late 2020 to current prices well above $3.00, Weixel told the LDC Gas Forums Northeast Forum in Boston.
Publicly traded exploration and production (E&P) firms largely “are sticking to their capex guns, meaning that they are actually constraining their drilling response,” Weixel told the in-person gathering. This restraint is reflected in rig counts as well as the amount of money producers are spending in the field, he said, “which translates into essentially flat production.”
IHS Markit expects Lower 48 gas production to exit 2021 at around 92 Bcf/d.
While upstream supply has seen a decent post-pandemic recovery, “it is not doing near what it needs to do to keep up with” LNG and Mexico demand, Weixel said.
Total U.S. gas exports including LNG and Mexico have averaged a staggering 17.1 Bcf/d over the last five months, Weixel said.
U.S. dry gas supply to date is up 3.6 Bcf/d this summer to date versus summer 2020, which in a normal year would be a robust increase.
However, LNG feed gas demand is up 4.8 Bcf/d for the same period and Mexico export demand is up 1.3 Bcf/d, Weixel said.
The International Energy Agency said this month that gas flows to Mexico via pipeline rose 15% year/year during the first half of 2021, and are likely to grow by an estimated 10% over the 2020-2024 period.
U.S. natural gas storage inventories as a percentage of the five-year average, meanwhile, are down 20% year/year, Weixel said, offering further evidence of resurgent demand.
Not all producers are pumping the brakes on investment, however.
The gassy Haynseville and Marcellus shale plays have emerged as the main source of incremental supply, Weixel said.
He explained that while the Marcellus and Utica are dominated by investor-owned E&Ps, private equity-backed drillers are more prevalent in the Haynesville.
These producers are not beholden to the same investor pressures that have kept their publicly owned counterparts from ramping up production, according to Weixel. “Their mission is to produce gas and make money for their ownership.” He noted that Haynesville gas output is up by almost 2 Bcf/d since last summer.
IHS Markit expects 2022 to be “a barn-burner year,” with production reaching 96.7 Bcf/d by December, according to Weixel.
The Haynesville and Marcellus are expected to drive much of the growth. Associated gas output also is likely to return to pre-pandemic levels, he said.
Weixel noted that IHS Markit is now forecasting the Mountain Valley Pipeline, which will add 2 Bcf/d of exit capacity out of the Northeast, to enter service in which will add 2 Bcf/d of exit capacity to enter service in the fall of 2022.
The research firm expects the global LNG market to loosen a bit in mid-2022 as new liquefaction projects come online, causing U.S. feed gas demand to flatten.
Weixel said IHS Markit expects gas demand from the power sector to decline year/year through next year, driven by new wind and solar capacity coming online.
“Certainly, this renewables penetration thing is real, it’s not a theory,” Weixel
MINING:
Greens Creek stays on 10M oz silver pace
Shane Lasley, North of 60 Mining News, July 16, 2021
Alaska mine produces 2.6M oz silver, 12,859 oz gold during Q2 North of 60 Mining News
Hecla Mining Company July 13 reported that its Greens Creek Mine in Southeast Alaska produced 5.14 million ounces of silver and 25,377 oz of gold through the first half of 2021. This accounts for more than 73% of the 6.98 million oz of silver and nearly 23% of the 111,143 oz of gold produced at Hecla mines so far this year.
During the second quarter, Greens Creek produced 2.56 million oz of silver and 12,859 oz of gold. The silver output is roughly par with the first quarter but down 7% from the 2.75 million oz produced during the same period of 2020. The gold production is down about 3% from the first quarter and about 2% from the second quarter of last year.
Hecla attributes the lower silver production during the second quarter to lower grades resulting from mine sequencing. The mill operated at an average of 2,362 tons per day during the second quarter, which is nearly the same as the 2,366 tpd throughput during the second quarter of last year.
Overall, Hecla’s four mines currently in operation – Greens Creek, Lucky Friday (Idaho), Casa Berardi (Quebec), and Nevada Operations (Nevada) – produced 3.52 million oz of silver and 59,139 oz of gold during the second quarter.
Greens Creek’s percentage of Hecla’s total silver production is expected to decrease with the company’s Lucky Friday Mine ramping back up to full capacity. During the second quarter, Lucky Friday produced 913,294 oz of silver, nearly double the 469,537 oz produced during the second quarter of last year.
“With steady growth in silver production at the Lucky Friday Mine and solid operating performance from our Greens Creek Mine, we achieved our second highest quarterly silver production since 2016,” said Hecla’s President and CEO Phillips Baker, Jr. “This strong performance combined with steady prices delivered an increase of approximately $41 million in cash, the fifth consecutive quarter of increasing cash reserves and one of the highest increases in Hecla’s history.”
Hecla went into the second half of 2021 with approximately $181 million in cash and cash equivalents, and its revolving line of credit is undrawn.
POLITICS :
Changing How Primaries Work Probably Won’t Make Politics Less Divisive
Geoffrey Skelley, FiveThirtyEight, July 19, 2021
Republican candidates around the country are trying to win over former President Donald Trump’s supporters before the 2022 midterm elections, so it’s no surprise that many are choosing to go all in on the false claim that the 2020 election was stolen from him. The idea is that by embracing this lie, they might boost their electoral chances; it’s one reason many GOP lawmakers haven’t disputed this falsehood.1
This extreme jockeying would seem to support the argument that our primary elections greatly contribute to the increased polarization and conflict we see in our politics. Yet, as a report from the think tank New America by FiveThirtyEight contributor Lee Drutman details, primaries are not really a major catalyst for why Congress is so polarized — thus, changing how primaries work may not actually do that much to fix the problem.
Incumbent politicians have moved further toward the political extremes in recent elections partly because they are worried about a primary challenge. But studies suggest that the primary electorate itself isn’t any more ideologically extreme than the general electorate. Rather, the bigger problem is the decline in competitive congressional districts. Only about 1 in 6 congressional districts were “swingy” in the 2020 general election, compared with roughly 2 in 5 in 2000.
The rapid decline in competitive elections isn’t because of our primary system, though. It’s due mainly to partisan sorting, whereby Democratic areas are becoming more Democratic and Republican areas more Republican — either because people are changing their attitudes to better match their party or they’re moving to areas where their preferences are already dominant.
The upshot, of course, is that with fewer competitive districts, a primary is often more important than the general election, as it’s in this stage that the eventual winner is selected. That’s one big reason why incumbents fear a primary challenge even though few incumbents lose primaries — it’s the primary that increasingly matters for electoral survival.
Yet the argument that primaries generate more polarization doesn’t necessarily hold true, as studies don’t clearly show primary voters as being more extreme than those who vote only in the general election. That is, the average Democrat voting in a primary may not be much more liberal than the average Democrat who votes only in November; the same premise goes for Republicans.
This lack of an obvious ideological gap between primary and general election voters helps explain why reforms aimed at broadening the primary electorate haven’t produced meaningful results. Reformers argue that a more open primary system — such as an open primary, in which no party registration is required, or a top-two primary, where all candidates run regardless of party and the top-two vote-getters advance — will produce a more moderate electorate and more moderate candidates. However, neither has really happened.
Studies suggest that changing the primary system from a closed system, where only party registrants can vote, to an open primary or a top-two primary doesn’t really alter the makeup of the primary electorate. In fact, the electorate in more open primaries may be slightly more extreme. (This probably shouldn’t surprise us, though, considering that most independents vote similarly to openly partisan voters and that moderates often hold idiosyncratic and sometimes extreme views.)
Moreover, more open primary systems haven’t attracted more middle-of-the-road candidates — or gotten them elected. Multiple studies find little or no evidence that more open primary systems attract more moderate candidates to run or to win more often. Tellingly, in his study, Drutman examined the average ideological position of House members over the past five congresses based on the type of primary used to nominate them and found little difference by primary type for either party. Rather, ideology was much more aligned with how red or blue the district was.
That said, there is a new primary system — Alaska’s top-four primary — that could pay dividends in a way the others have not. In 2022, candidates from all parties will run in a primary, and the top-four vote-getters will advance to the general election, where voters will use ranked-choice voting to decide the winner. In theory, such a system could reduce incumbents’ concerns about getting “primaried” because, with high name recognition and bountiful resources, they’re more likely to reach the general election if four candidates, rather than just one or two, advance.
However, the top-four primary could still suffer from some of the same problems that have afflicted the top-two primary in the two states that currently use it, California and Washington. Namely, a top-two primary in a deep blue or red district sometimes sends two candidates from the dominant party to the general election. In that situation, reformers expected voters from the other party to support the more moderate contender, but that hasn’t really panned out. Instead, voters from the other party often don’t bother voting because they may struggle to differentiate between the candidates from the dominant party. In other words, a Democrat may see two Republican candidates as being two sides of the same coin and choose to abstain; similarly, a Republican may have the same reaction when two Democrats are on the ballot.
We may see a similar problem arise in a top-four system’s general election, whereby voters may have to rank two or more candidates from the opposing party. This may not be a big problem in a high-profile race like Alaska’s 2022 Senate contest because voters will be more informed about that race. But in a race getting comparably less attention — like a House election in a state with many districts (if such a state implemented this system) — it’s less likely that voters in a random district would be able to easily discriminate between who is more moderate among the other party’s candidates.
Even in a high-profile contest like Alaska’s 2022 Senate race, the top-four system won’t necessarily help an incumbent like Sen. Lisa Murkowski, a moderate Republican who has actively defied Trump in a state he won by 10 points in 2020. While other major contenders could still enter the race and Murkowski hasn’t officially announced her reelection bid, it looks increasingly like she will face one other notable Republican running to her right: former commissioner of Alaska’s Department of Administration Kelly Tshibaka. And Murkowski’s moderation could actually hurt her because it has significantly eroded her standing in the Alaska GOP in what is, remember, a fairly red state. The state party, for instance, has censured her for voting to convict Trump in his second impeachment trial and then endorsed Tshibaka, who also earned Trump’s coveted endorsement. Murkowski is no stranger to hard-fought races, though. After losing renomination in the GOP primary in 2010, she won reelection as a write-in candidate in the general election, thanks to her ability to appeal to broad swaths of the state’s electorate, such as Alaskan Natives and some Democrats. Yet her anti-Trump bona fides could make it more difficult for her to win this time around, as she could struggle to hold on to a significant chunk of the GOP base, which may be necessary to win.
Murkowski should still be able to advance to November in the top-four primary, but she could be in trouble if something like the following scenario plays out in the ranked-choice voting process: In the first-choice vote, Tshibaka wins a majority of Republican voters and Democrats have a high-profile candidate who they largely back instead of Murkowski. In this situation, Murkowski could easily find herself in third place among the first-choice votes. So even if she’s the preferred second-choice candidate for most of the voters who backed the fourth-place candidate, she might still be in third after those votes are reallocated, which would mean game over. In other words, even if Murkowski were the preferred option for the state’s electorate in a head-to-head matchup with Tshibaka, that wouldn’t matter if she never got into a position to find out. So contrary to reformers’ expectations, a top-four primary might not be the ticket to victory for more moderate candidates either.
To be sure, this doesn’t mean primary reforms aren’t worth pursuing. Considering many elections are decided in the primary and not the general election, the top-four is, in a way, more democratic because it gives the larger general electorate more say. It’s just that more open primary systems — even Alaska’s top-four — aren’t likely to do much to diminish polarization. And that’s likely because the biggest driver of polarization is the widening chasm between the two parties. Ultimately, the divide between the parties is a much stronger source of our nation’s increasingly polarized politics than any candidate maneuvering in the primaries — or how the primaries themselves work.
CLIMATE CHANGE :
Kerry to press big nations for “meaningful absolute reductions” in emissions
Ben Geman, Axios, July 20, 2021
John Kerry, President Biden’s special climate envoy, today will press every major economy to commit to “meaningful absolute reductions” in greenhouse gas emissions by 2030.
Why it matters: The comments, part of what’s being billed as a “major policy speech” in London, provide a greater sense of the U.S. posture ahead of the critical U.N. climate summit this fall.
Quick take: Kerry’s remarks are likely directed at major emitters including China, the world’s largest, which thus far has pledged only to have an emissions peak before 2030.
What’s next: Kerry will say there’s still time to limit to global temperature rise to 1.5°C above pre-industrial levels — the most ambitious goal of the Paris deal — but only with steep cuts this decade.
- “That is the only way to put the world on a credible track to global net zero by midcentury,” he will say, per excerpts shared by aides.
- “We’re already seeing dramatic consequences with 1.2°C degrees of warming. To contemplate doubling that is to invite catastrophe,” Kerry will say.