PNWER Annual Summit
July 14 -19, 2013
Energy I Working Group Proceedings
PNWER Annual Summit - Anchorage, Alaska
July 16, 2013
Co-chair Senator Cliff Larson, Montana
Co-chair Representative Charisse Millet, Co-Chair, Alaska House of Representatives
Special Committee on Energy
Speakers:
Drue Pearce, Chair, Institute of the North, Former Alaska State Senate President,
current Senior Policy Advisor, Crowley & Moring LLP, Washington, DC
Al Sanderson, Chief Assistant Deputy Minister, Strategy Division, Alberta Energy
Larry Persily, Federal Coordinator, Alaska and Canada’s Natural Gas Transportation
Projects
Barry Penner, QC, Senior Counsel at Davis LLP, and former Environment Minister and
Attorney General of BC
Gary Weilinger, VP, External Affairs, Spectra Energy
Expanding International Markets for LNG
Larry Persily began the session by speaking about the LNG potential as it relates to
Asian markets. Contracts signed 10-15 years ago are expiring, and this presents
opportunities for Alaska and British Columbia to enter the market. However, there
is competition from Australia with over 7 LNG plants are being constructed. Most of
that gas is already committed under long term contracts, so they do not present the
immediate competition. Developers looking ahead for the next project in Australia
are looking for Floating LNG or FLNG. They are huge ships that extract the gas,
liquefy it and transfer it to other ships.
Russia is another competitor. A proposed pipeline to Vladivostok needs a pipeline
that costs $13 million dollars a mile. There are geographic considerations. The vast
majority of the year, getting gas from Yamal to Asia would require a journey from
the Mediterranean due to sea ice. Another is the issue with gas exports, where
Gazprom has a monopoly and would need to have other permits issued for Rosneft
and Exxon to penetrate that market.
There is also gas in Tanzania and Mozambique, but there is no institutional capacity
and the support is nonexistent.
The Gulf of Mexico is now changing from being an import hub to a dual terminus
that ties into the north American pipeline network. Lower development from
existing infrastructure makes it attractive. One problem is still distance: the Panama
canal is widening its canal and will need to expand the tariffs. This increased the
transaction cost and the distance.
PNWER Annual Summit
July 14 -19, 2013
The Department of Energy has 19 projects proposed for export projects. The pace is
pretty lethargic, with delays being an important problem.
Alaska and Canada are closer to markets in Asia. Charter rates are somewhere
between 90,000 and 140,000 a day. Shaving a week off of that transportation cost is
significant. Alaska and Canada has a relatively stable government. Alaska also has
Prudhoe Bay that has been producing oil and shooting the gas back down.
At $65 billion dollars on the high end, the large diameter LNG project in Alaska
would be the most expensive project in the world. The current plan, recently passed
by the legislature, would be at 8 billion dollars and is a significant project as a
“backup project.” While assessing if there are shippers and other deals that can be
made, by 2015 the viability of the large diameter will be more clearly known. BC
looks like it will get into exports between
Overview of Alaska’s Petroleum Resources: Prudhoe Bay and Outer-Continental
Shelf Development in the Arctic
The next presentation, given by Drue Pearce, gives a basic overview of Alaskan
petroleum resources, in Prudhoe Bay and outer continental shelf development in
the Arctic. The United States is losing its strategic edge in the Arctic. Arctic transits
will create economic growth for all the PNWER states. This is not just Alaska’s arctic.
Jobs and wealth can be procured and sustained for generations. But the sobering
fact is that we cannot sit and wait for the investment world to come to us. Is the
Arctic really that different? Exploration in the Arctic has already yielded over 400
arctic wells. Every remote area has some extremes. The biggest obstacle is ice, and
innovation in pipelines that adapt to the pressures of that climate are meeting that
challenge.
Russia and Exxon cooperating will bring more oil and gas from OCS than the United
States thanks to the stagnating process in the United States. Most vessels that are
capable of working in the Arctic will pass through the Chukchi. The example of
Conoco Phillips in the OCS and the permitting process through the Corps of
Engineers in 2008, and was appealed in 2010 for the application of the 404 permit,
which would allow Conoco to build a bridge over the Coville River. CD5 represents
more than a billion dollars invested during this time. The initial gross production
rate for this is around 15,000 barrels of oil a day, with first oil in 2015. That is a
project where the environmental impact statement was completed in 2004.
Litigation has been filed against the Corps by environmental groups for issuing the
project.
Another project is the Point Thompson Project. Preapplication meeting began in
2009, and their permit was issued in 2012. Startup is expected in 2016, more than a
year behind schedule.
PNWER Annual Summit
July 14 -19, 2013
Finally, there is Shell, looking for oil in the Chuckhi. Companies need regulatory
certainty, and Shell proved this when being forced to comply with extra-regulatory
requirements that were not required by law. Since there is not sufficient knowledge
of what is occurring regulatory wise, there cannot be investment.
The Feds need to say yes rather than creating disincentives at every turn. The
pipeline needs more oil, and it creates independence and security for all the PNWER
States.
Albertan Energy Resource Potential and Government Action in adding value to
achieving North American energy security
Al Sanderson, chief assistant deputy minister in the Strategic Division of Alberta
Energy then focused on Alberta’s energy resources, from a government perspective.
One of the benefits in Alberta, where we have control over our natural resources, is
we are not captured by people who are 2000 miles away telling us what we can and
cannot do. I do not see us as huge competitors in this business. It is up to us to
maximize our opportunities.
We have a common border and we also share common values. We also are seeing
common challenges. A few years ago, we were seeing Alberta having ample supply
and more than enough demand. The US oil and gas renaissance has led to a decline
in Alberta exports.
In the natural resource management field, Alberta in 2012 produced roughly
1.9mbbd by 2020 that can increase to 4mbps. It is the largest supply of known
recoverable oil in the world. Only 21 percent of the world’s known oil supplies are
privately owned, and half of that is in Alberta. While the focus is on oil sands, there
is still conventional oil, natural gas, petrochemicals and wind energy, bio and
geothermal energy in Alberta.
Integrated resource management system uses a systems approach. First policy
development, policy assurance and environmental monitoring are the elements.
Firstly, we have developed the problems into regions. The plans provide strategic
outcomes that reflect the unique regional needs of the province. The regional plans
also deal with the tricky issue of cumulative effects on the environments. The
second element is policy assurance. We have taken the old regulatory body, and
brought the environmental process and had it streamlined.
The third element is environmental monitoring. In conjunction with the Federal
government we have created an environmental monitoring scheme to meet those
requirements. There was a question regarding climate change and greenhouse gas
emissions. That technology fund that has been created has been directed to the
mission’s management corporation, which is 300 million dollars going to research
and technology to deal with greenhouse gas emissions. Alberta was the first
PNWER Annual Summit
July 14 -19, 2013
jurisdiction in North America to pass legislation to deal with greenhouse gas
emissions.
Coupled with that there are two significant carbon capture storage projects totaling
$1 billion.
There is a responsibility to convey to the public that the revenue generated from
resources generates social good. There are other markets being looked towards for
Alberta, and a source for exporting at tidewater.
Scale and Scope of Resource Potential in Western Canada
Gary Weilinger gave the final presentation of the session, which focused on Western
Canadian resource potential. LNG potential in BC is vast and there will be challenges,
if we want to develop those resources and stay on the trajectory that we are in. We
are looking to collaborate with the private sector and governments. Spectra is based
out of Houston, but more than half of its assets are in Canada. Spectra employs 5400
people, 3500 in Canada.
The legacy in BC: Spectra was known as West Coast transmission. Spectra has two
complete pipeline systems that are interconnected with the north American grid.
Spectra has built deep roots across the community. The US continues to be the most
reliable buyer a supplier can have. The game is changing once again for BC. The
system was built to connect conventional reserves and service the I-5 corridor.
Canada now has 4 new supplies in northeastern BC, with a market based business
environment. We have a well-developed legal framework to offset the legal
liabilities. The U.S. market, the only export market of Canada, has seen an
incremental increase that is more than the total national gas output of Canada. The
ports of Kitimat and Prince Rupert will have the closest proximity to Asian markets.
Capitalizing on this opportunity will require rigorous reviews, but done effectively
with clarity and security with regard to priorities and outcomes.
1800 miles of transportation pipeline are connected to the grid and they serve to
aggregate supply under the Spectra system.
An opportunity for BC is the massive gas supply, but it is getting trapped in western
Canada. The proximity to Asia is clearly a strength and it is important to know that
this is an advantage vis-a-vis the Australian and southern African supplies. It is
important to note when one looks to the rule of law applying to BC versus Russia
and others. We also have an emerging aboriginal workforce. Finally, we have
openness to international investment.
Challenges include that Canada is lagging behind Australia and the US. LNG is a
competitive environment. The biggest issue concerns whether or not projects will
receive approval in Canada, and that is what markets are waiting for. First Nations
PNWER Annual Summit
July 14 -19, 2013
discontent is well known nationally and relations between them and government
and private corporations are complex. It is in the short run, however, that we work
with the stewards of the land. Labor and cost structure is the single greatest
problem we have. We need a skilled workforce to meet the demand for the projects
in the next two years.
Hydraulic Fracturing: Rewards, Risks, and Regulations
Rewards of fracking (Hydraulic fracturing) include the commercially available oil
and gas reserves. US oil production will soon exceed US imports. This keeps country
dollars at home. But it also has an impact on your neighbor Canada. Virtually all of
Canada’s production had been focused on the US import market. In 2006, when I
(Mr. Penner) was the Environment Minister, there was an LNG facility at Kitimat to
import gas for the U.S. because there was an opportunity to meet US demand due to
lack of supply. 2 ½ years later, I was asked to amend that facility to be an export,
rather than import facility.
Canada markets itself as a reliable supplier of gas.
The risks for fracking have been manifested in Hollywood movies. Entertainment
products dealing with oil and gas signify a critical mass. Fracking involves trying to
break open the rock formation to get access to the oil and gas. It involves a huge
injection of water, added with a chemical cocktail that until recently was proprietary
information. The deep injection of water also comes with sand and grit that prevent
the rock formation which will allow gas and oil to seep out. These chemicals act like
a lubricant so that the sand can get into the fractured rock. This is a concern
particularly to the First Nations people, who wonder what the impact will be on the
wildlife and the fish by being a deep injectant.
Another concern was the seismic lines, which are the swathes of trees being felled
for subsurface surveys which now reaches 100,000 km in total length. This allows
predators to have a clear line of sight for predators.
The concern is also over the potential pressurization of fault lines that are prone to
slippage that can precipitate an earthquake. Opposition to fracking has grown
amongst environmental groups. That public reaction has led to a political response.
In the US, the EPA is conducting a study on the impacts of groundwater and
emissions by 2015. States have imposed moratorium and impositions against
fracking. There have also been measures to increase fracking in an effort to gain
energy independence. Colorado is going to court against one of its counties for
imposing a ban on fracking. This has created a patchwork of regulations and
resolutions.
PNWER Annual Summit
July 14 -19, 2013
99.5% of that being injected into the ground is water. It is the remaining .5% that is
creating the controversy.
Ways to reduce the regulatory risk to accessing the resource include reducing the
seismic lines. Is there a way to reduce or eliminate the role of water in the fracking
process? Is there a way to eliminate the surface discharge altogether? What about
the methane emissions that come from drilling, called fugitive emissions? These are
unintended but incidental in the process.
Action Items:
1. Harmonizing skills to assist labor mobility
2. Response cooperation
a. Inventory cross-border agreements for mutual aid to respond to
disasters and identify gaps that may exist
b. Seek funding to further develop mechanisms to share in response
between jurisdictions and nations (US – Canada)
3. Arctic Chamber of Commerce
a. Establish opportunities for private sector to provide meaningful input
in Artic policy discussions
b. Provide regional support for Canada’s initiative to engage private
sector in the Arctic Council
4. Engagement of indigenous peoples
a. Utilize PNWER website to share best practices and survey PNWER
jurisdictions for case studies on early successful engagement
strategies which involved indigenous peoples in planning major
infrastructure projects
5. Public awareness of benefits and resource development
6. Examine consistent standards for resource development – where are they
divergent? Must overcome patchwork quilt of regulatory regimes
a. Seek contributors and stakeholders to work on a white paper to
identify the gaps and regulatory barriers to resource development
across jurisdictions