Today’s Key Takeaways: Supply chain challenges make growing oil production difficult. Too soon to tell what Russian oil ban may mean for Alaska. Santos one step closer on carbon capture and storage project. Donlin Gold partners report impressive assays, $60 million program underway.
NEWS OF THE DAY:
Why U.S. oil production isn’t growing even faster
Ben Geman, Axios, March 9, 2022
One topic getting lots of attention at a huge energy industry conference here is whether U.S. oil production can grow even faster as western countries seek to isolate Vladimir Putin.
Driving the news: The U.S. Energy Information Administration just increased its 2023 U.S. production forecast to an average of 13 million barrels per day (mbd), up from 12.6 mbd in last month’s projection.
- But the latest outlook — stuffed with caveats because of, well, all this (waves hands) — has a far smaller upward revision for 2022.
Why it matters: Forces including supply chain and labor constraints and investor demands for returns are limiting growth velocity even at highly attractive prices, oil executives said at the CERAWeek by S&P Global conference.
What they’re saying: “You’re going to see the industry responding to this,” ConocoPhillips CEO Ryan Lance said.
- “You’ll see the growth, you’ll see it coming out of this business, but people are going to have a hyper-focus on returns,” he said.
- Lance also cautioned that “whatever we start doing today doesn’t get produced for 12 to 18 months from today.”
Occidental Petroleum CEO Vicki Hollub told the conference: “With supply chain challenges, it makes any kind of attempt to grow now — and at a rapid pace — very, very difficult.”
Go deeper: Oil prices surge as U.S. bans Russian energy imports
OIL:
What the ban on Russian oil could mean for Alaska
Sabine Poux, KDLL, March 8, 2022
President Biden announced on Tuesday a ban on Russian oil and gas imports to the U.S.
Sens. Lisa Murkowski and Dan Sullivan are among the senators who had pushed for such a ban to punish Russ Ukraine.
And in Juneau, the Alaska State Senate made a similar request.
The goal is to cripple Russia’s economic power. The western U.S. states get between 300,000 and 7 million barrels of oil from Russia every month, according to data from the Energy Information Administration.
Little if any of that supply heads to Alaska now, although there is at least one facility in Alaska that has historically included Russian crude among its foreign imports — the Marathon Refinery in Kenai.
Marathon isn’t currently importing Russian crude to Kenai, said Kara Moriarty, head of the Alaska Oil and Gas Association. She said the facility stopped importing from the country around last year, though she isn’t exactly sure why.
“I just know at this time there are no Russian imports to Alaska I’m aware of,” she said.
Jamal Kheiry, a spokesperson from Marathon Petroleum, said the company doesn’t comment on its crude sourcing beyond the fact that it processes “mainly Alaska domestic crude along with limited international crude to manufacture gasoline, distillates, heavy fuel oil, asphalt and propane.”
Moriarty said refineries like the Kenai facility will make decisions about where they source imports based on demand and the type of crude they need.
She guesses those factors — not the current crisis in Ukraine — were to blame for the change.
“Those circumstances change pretty fluidly,” she said. “And so, I don’t know any rationale for recent, but I know that’s been some of the rationale in the past.”
RELATED: Biden announces Russian oil import ban and warns gas prices could increase even more
Former Marathon plant manager Mark Necessary said he remembers importing some Russian crude during his time at the plant between the 1970s and 1990s. At that time, the refinery was under different ownership.
In a Senate speech last week, Sullivan quoted Ukraine’s minister of Foreign Affairs, who said that buying Russian oil and gas now amounts to paying for the murder of Ukrainian men, women, and children.
“That’s the foreign minister of Ukraine,” Sullivan said. “What he’s asking for is something we can easily do.”
He suggested that the U.S. could fill in the gaps in production left by such an embargo.
But Moriarty said it’s too soon to tell what a ban on Russian oil could mean for Alaska’s own production.
“Because no one knows for certain how long this conflict is going to last,” she said. “No one knows the ramifications, depending on how long this is going to last. Does this open a market for us and for gas and North Slope gas? Again, I think it’s just too soon to tell.”
GAS:
GLOBALLY SIGNIFICANT CARBON CAPTURE AND STORAGE PROJECT A STEP CLOSER
Santos, March 9, 2022
Santos, as operator of the Bayu-Undan offshore gas production facility in Timor-Leste and Darwin LNG, has today announced entry into the front-end engineering and design (FEED) phase for the proposed Bayu-Undan carbon capture and storage (CCS) project.
The Bayu-Undan CCS project could potentially safely and permanently store up to 10 million tonnes of carbon dioxide per annum, equivalent to about 1.5 per cent of Australia’s carbon emissions each year.
The project has the potential to be the largest CCS project in the world and one of the many that will be critical to help the world meet its climate goals. The IEA Roadmap to Net Zero by 2050 envisages carbon capture, utilisation and storage growing to 7.6 billion tonnes of CO2 per year by 2050 from around 40 million tonnes per year today.
The Bayu-Undan FEED work will include engineering and design for additional CO2 processing capacity at Darwin LNG plus repurposing of the Bayu-Undan facilities for carbon sequestration operations after gas production ceases.
Santos is working closely with the Timor-Leste regulator, ANPM, towards the necessary agreements and regulatory framework that will be required for the Bayu-Undan CCS project. The project will also need agreements between the governments of Timor-Leste and Australia, and some Australian regulatory arrangements.
Santos Managing Director and Chief Executive Officer, Kevin Gallagher, said taking FEED builds on the growing momentum for the regional carbon reduction project.
“Located in Timor-Leste with potential CO2 sources from Australian gas projects and other industries in the Northern Territory, Bayu-Undan CCS could be the start of a valuable new carbon services industry for Timor-Leste. It would create new jobs and a new revenue stream for the nation once gas production from Bayu-Undan ceases,” Mr Gallagher said.
“Entry into the FEED phase has strong support from our five joint venture partners headquartered in Japan, Korea, and Italy. And last month, a meeting of the Timor-Leste and Australian Prime Ministers included a commitment by Australia to establish an LNG Partnership Fund to deepen links between Australia and Timor-Leste in gas development and trade, including in the use of carbon capture and storage.
“With about 80 per cent of the world’s energy still coming from hydrocarbons, including natural gas, and new supply investment still required to meet the world’s ongoing demand for these products, it is essential that we decarbonise their production. CCS offers a large-scale, low-cost, and permanent way to progressively make these fuels cleaner. CCS will also enable new clean fuels industries such as hydrogen which will dramatically reduce not only Scope 1 and 2 emissions, but Scope 3 emissions as well.”
Santos has a 43.4 per cent operated interest in Bayu-Undan and Darwin LNG. The remaining interest is held by SK E&S (25 per cent), INPEX (11.4 per cent), ENI (11 per cent), JERA (6.1 per cent) and Tokyo Gas (3.1 per cent).
Santos’ approved Barossa project is one of several potential CO2 sources for Bayu-Undan CCS, but importantly this project offers a whole of region carbon solution.
A final investment decision on Bayu-Undan CCS is targeted for 2023, subject to relevant regulatory frameworks and agreements being in place in both Timor-Leste and Australia.
MINING:
Strong 2021 finish preps Donlin for 2022
Shane Lasley, March 3, 2022
With intercepts such as 19 meters averaging 18.23 grams per metric ton gold, the final batch of drill results from the 2021 program at Donlin Gold continue to show the strength of mineralization of the 39-million-ounce gold deposit and set the stage for the largest program at the world-class mine project in more than a decade.
Being advanced toward a production decision by Donlin Gold LLC – a joint venture owned equally by Novagold Resources Inc. and Barrick Gold Corp. – this enormous mine project in Southwest Alaska hosts 504.81 million metric tons of proven and probable reserves averaging 2.09 grams per metric ton (33.9 million oz) gold.
Optimization drilling carried out over the previous two years has focused on validating recent geologic modeling concepts in preparation and testing high-grade zone in preparation for updating the feasibility study that details the plan for mining this world-class gold deposit.
This includes roughly 24,264 meters of drilling completed last year in 79 holes.
Highlights from previously reported results from this drilling include:
• 40.97 meters averaging 10.5 g/t gold from a depth of 114.2 meters in DC21-1963A.
• 47.78 meters averaging 9 g/t gold from a depth of 400.51 meters in DC21-1969.
• 92.02 meters averaging 7.8 g/t gold from a depth of 69.7 meters in hole DC21-1970.
• 19.15 meters averaging 12.57 g/t gold from a depth of 173.19 meters in hole DC21-1970.
• 57.25 meters averaging 6.87 g/t gold from a depth of 270.35 meters in hole DC21-1976.
• 12.18 meters averaging 19.02 g/t gold from a depth of 293.4 meters in hole DC21-1980.
Assays from the final 2021 holes, plus 22 partial holes previously reported, also cut strong gold mineralization. Highlights include:
• 77.56 meters averaging 3.51 g/t gold from a depth of 262.56 meters in hole DC21-1994.
• 45.83 meters averaging 3.04 g/t gold from a depth of 103.55 meters in hole DC21-1998.
• 43.01 meters averaging 5.04 g/t gold from a depth of 27.16 meters in hole DC21-2015.
• 19 meters averaging 18.23 g/t gold from a depth of 144.53 meters in hole DC21-2017.
• 28.23 meters averaging 4.4 g/t gold from a depth of 156.26 meters in hole DC21-2019.
“The 2021 drill campaign finished strong with some high-grade intercepts and some of the best drill results for an open-pit gold project industrywide,” said Novagold Resources President and CEO Greg Lang. “The increased level of activity, with approximately 65 people on site for the 2022 field season and three of four drill rigs operating at Donlin Gold, continues to build momentum and excitement for the future of the project.”
Earlier this year, Donlin Gold approved a $60 million budget for a 2022 program that includes roughly 34,000 meters of drilling to collect the final data for an updated feasibility study for the extraordinary gold mine project.
The previous Donlin Gold Mine feasibility study, completed in 2011, detailed plans for a mine that would produce more than 1 million oz of gold annually over an initial 25 years of mining.
“It is encouraging to see a significant drill program for 2022 to further increase our understanding of the ore body, driven by our knowledge gained from the 2021 drill program,” said Barrick Gold President and CEO Mark Bristow. “This year’s drilling campaign will focus on the potential upside of the Acma pit at depth, where there is still limited drilling, focusing on the upside for the pit. We will also focus on grid drilling on Lewis and Divide as we also look to unconstrain the pit with additional at depth targets. This significant program for 2022 will help guide us on future drill targets and the path forward with the project.”
As impressive as the 2021 drill results were and as large as the 2022 program is slated to be, the safety and local hire record at Donlin Gold is equally remarkable.
Out of roughly 171,310 hours worked during 2021, only four cases of COVID-19 were recorded at the Donlin Gold project site – all of which fully recovered.
Donlin attributes this achievement and the successful execution of the expanded 2021 drill program to its efficient and effective onsite team and the dedication of its partners in the region, particularly Calista Corp., The Kuskokwim Corporation, and other tribal groups in the Yukon-Kuskokwim area of Southwest Alaska where the gold mine project is located.
“The expanded 2021 drill program was a success because of the incredible work by the Donlin Gold team, Calista and TKC, and our collective dedication to the highest standards of safety, social responsibility, and environmental stewardship,” said Donlin Gold General Manager Dan Graham. “We are grateful that, even while expanding the 2021 drill program mid-summer, COVID-19 cases at site were minimal and there were no lost-time incidents.”
During the 2021 drill program, 70% of the workers directly hired by Donlin Gold were Alaska Natives from 20 communities in the Yukon-Kuskokwim area.
As they prepare for the $60 million program slated for 2022, the Donlin Gold partners say they will continue to advance the world-class gold project as they have for many years – in a financially disciplined manner with a strong focus on engineering excellence, environmental stewardship, robust safety culture, and active community engagement.
POLITICS:
U.S. oil executives meet with Biden officials as crude soars
Kevin Crowley, Jennifer A. Dlouhy, Ari Natter, Naureen S. Malik, World Oil, March 9, 2022
Oil industry executives are meeting with U.S. officials this week as surging energy prices and mounting national security concerns bring together two groups that have had a distant relationship since President Joe Biden’s inauguration.
Department of Energy officials including Secretary Jennifer Granholm will meet with representatives from Exxon Mobil Corp., Shell Plc, and some shale producers on the sidelines of the CERAWeek by S&P Global conference in Houston, according to people familiar with the matter, who asked not to be named because the meetings are private.
Crude prices surged to more than $130 a barrel Tuesday, the highest since 2008, after the U.S. and the U.K. said they will ban Russian oil imports, choking off yet more dollars from President Vladimir Putin as he continues with his invasion of Ukraine.
The U.S. is one of the few countries that can help replace Russian energy exports over the medium term. But executives have routinely complained about little or no dialogue with the Biden administration. The industry argues that it needs a more supportive energy policy and rhetoric from the administration if it is to commit the large sums of money required to grow production.
Exxon and the Department of Energy didn’t immediately respond to requests for comment. A Shell representative declined to comment.
American oil and gas companies have everything they need to ramp up near-term production, a White House official said. Oil and gas demand is increasing as the world emerges from the pandemic and producers should keep up with demand in the near term, the official added.
The U.S. could double its rate of oil production over the next 18 months but “it’s going to take cooperation with Biden, it’s going to take co-operation with our shareholders,” said Scott Sheffield, Chief Executive Officer of Pioneer Natural Resources Co., the biggest oil producer in the Permian Basin. He declined to comment on the existence of, or any involvement in, talks with government officials.
“I’ve been told his mindset is changing,” Sheffield said, referring to Biden.
Mike Sommers, the CEO of the American Petroleum Institute, the largest energy lobbying group, said Tuesday the best thing the White House could do now would be to hold a meeting with industry leaders.
In another sign that relations between the industry and government are beginning to thaw, the White House held a call with industry representatives prior to Biden’s order restricting Russian oil imports Tuesday. The call gave an overview of the sanctions, according to people familiar with the matter. It wasn’t an opportunity for meaningful dialogue, one of the people said.
While any significant acceleration of U.S. production growth would take at least a year, executives say that more accommodative policy needs to start now. Their list of requests includes restarting federal lease sales, approving liquefied natural gas permits, and supporting new pipelines.
Biden said Tuesday his administration isn’t holding back production. He cited the 9,000 approved but unused drilling permits on federal land held by oil companies. “They are not using them for production now,” he said. “That’s their decision.”
The administration is also considering moves that would enable more oil to flow from Iran and Venezuela. But rocketing gasoline prices across the U.S crisis may force him to move more quickly.
John Kerry, Biden’s climate envoy, opened the CERAWeek conference on Monday by saying oil and gas industry companies “must be at the table” when mapping out the energy transition, a statement that was well received by the industry. He also said gas would play a key role in a low-carbon world.
The U.S. Department of Energy hosted a small dinner Monday night to discuss the energy transition and security with executives from gas utilities, steel companies, transportation and oil and gas more broadly, said Yuri Freedman, senior director of business development at Sempra’s Southern California Gas utility, who attended. The National Security Council was part of the discussions as well, demonstrating the priority being placed on security, he noted.
Freedman said the DOE officials included Deputy Secretary David Turk; Jigar Shah, director of the loan programs office; and Vanessa Chan, chief commercialization officer and director of technology transitions.
