International explorers steer clear of Alaska’s wildlife refuge
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When you have spent a long time waiting for something, it can sometimes be a disappointment when it arrives. Attempts to open up a section of the area covered by the Arctic National Wildlife Reserve in Alaska for oil development have been rumbling around since the 1970s. But by the time a first lease sale was finally held this week, there was very little interest from the industry. Most of the leases sold went to the state, in the shape of the Alaska Industrial Development and Export Authority, and the high bids totaled just $14.4 million.
The fact that the sale fell flat, however, does not mean that Alaska’s oil industry is locked into inevitable decline. In fact, the state is on the threshold of a mini boom. The glory days of the 1970s may be gone forever, but Alaska is set for strong growth in oil production over the coming decade.
The ANWR lease sale was mandated by the Tax Cuts and Jobs Act, signed into law in 2017. The deadline for a first sale was 22 December 2021, but the Trump administration opted to press ahead and get it done before Joe Biden moves into the White House on 20 January. Lisa Murkowski, a Republican senator for Alaska, described the resources in ANWR as, “critical to creating jobs, generating revenues, refilling the Trans-Alaska Pipeline System, and ensuring our nation’s continued energy security.”
Of the 22 tracts available, 11 received bids, and the Alaska Industrial Development and Export Authority was the highest or only bidder on nine of those. Bids came in from just two private sector companies. The AIDEA decided last month to spend up to $20 million on leases in ANWR, to keep open the possibility of drilling for companies that could sublease the acreage in the future.
Julie Wilson, Wood Mackenzie’s research director for global exploration, said there were several factors that deterred international companies from bidding. The ANWR is a high priority for environmental groups, meaning that operators would face steep reputational risks, and the incoming Biden administration is expected to slow or halt awards of the permits needed for drilling. Prospectivity in the area is very uncertain compared to other parts of Alaska, and very large volumes would be required to justify development. For exploration companies with constrained budgets, it makes sense to focus on other basins that do not present the same “multitudes of various risks”, Wilson said.
However, recent discoveries elsewhere in Alaska mean the state is on course to increase its oil production significantly, even if no development goes ahead in ANWR. ConocoPhillips and Oil Search / Armstrong / Repsol have had some big exploration successes in the past decade, including the Pikka and Willow fields, and are now moving forward towards developing some of their discoveries. These large fields are massively important as they change the overall Alaska profile away from steady decline, and will lead to more opportunities to keep exploring and developing further west. Production from Alaska’s principal fields was about 422,000 barrels a day in 2020, using figures from Wood Mackenzie’s Lens database, and by 2028 that is expected to rise to over 640,000 b/d. It is a far cry from the state’s peak production of about 2 million b/d in 1988, but still a brighter performance than the lacklustre ANWR sale would suggest.
Energy legislation passes Congress
Senator Murkowski, who chairs the Senate Energy and Natural Resources Committee, scored a success at the end of last year when energy legislation that she had championed was passed into law, as part of the comprehensive bill to fund the US government and offer additional relief to offset the impact of the Covid-19 pandemic. The bill, the first major energy legislation to be passed in the US for 10 years, included help for a wide range of energy sectors, including renewables, coal and gas-fired power, nuclear, geothermal, hydrogen, storage and carbon capture. It included $35 billion for energy R&D, and a two-year extension for the Investment Tax Credit for solar power, described by Wood Mackenzie’s head of solar research, Ravi Manghani, as “a much better outcome than the industry had expected”.
Many of the bill’s provisions were put forward in legislation proposed last February by Senator Murkowski and Joe Manchin, a centrist Democratic senator from West Virginia. Following the victories of Democrats Raphael Warnock and Jon Ossoff in the run-off elections in Georgia this week, Senator Manchin has been described as “the new most influential man in US energy”. Democrats narrowly hold control of the Senate, to go with their slim majority in the House of Representatives, which means they should be able to pass some legislation, but only if it can win support from Senator Manchin and other centrists.
Representing a coal and gas-producing state, Senator Manchin can be expected to be particularly staunch in resisting any measures that threaten the fossil fuel industries. In 2010, he famously ran a campaign advert showing him shooting a rifle at a text of proposed carbon cap-and-trade legislation. As a result, the Democrats’ strategy for attempting to cut greenhouse gas emissions seems likely to resemble the legislation that has just been passed, focusing more on carrots to encourage new low-carbon energy than on sticks to hit old, higher-carbon industries.
ExxonMobil publishes Scope 3 emissions
ExxonMobil has published its carbon and sustainability reports, with a wealth of analysis on the company’s views on the outlook for energy and climate, and its environmental and social performance. Responding to calls from investors and other stakeholders, the company has for the first time published its Scope 3 greenhouse gas emissions, which are created when its products are used. It will now report on its Scope 3 emissions annually.
The emissions from the oil and gas ExxonMobil produced in 2019 were 570 million tonnes, while emissions from the petroleum products it sold were 730 million tonnes. (The numbers cannot be added together to give a total, as that would mean significant double-counting.) For comparison, Canada’s total energy-related greenhouse gas emissions were 729 million tonnes in 2018.
But although it published the data, the company also raised issues with the conceptual basis for looking at Scope 3 emissions as an indicator of climate impact. For example, the company pointed out, if it sells more gas that displaces coal for power generation, its Scope 3 emissions would rise, but total global greenhouse gas emissions would fall. Ultimately, it argued, “changes in society’s energy use coupled with the development and deployment of affordable lower-emission technologies will be required to drive meaningful Scope 3 emissions reductions.”
Unlike the European majors, which have set ambitions for emissions reductions including Scope 3, ExxonMobil has framed its goals purely in terms of Scope 1 and Scope 2, resulting respectively from its own operations and from the energy it purchases. The new emissions intensity targets the company published last month set goals of reducing the greenhouse gases from its upstream operations by 15-20% per unit of oil and gas produced by 2025. It also aims to cut the intensity of methane leakage by 40-50% and of flaring by 35-45% over the same period.
Other noteworthy lines in the reports include the projection that global gasoline demand will peak and begin to fall between now and 2040, but oil use will continue to rise, driven by demand for diesel, jet fuel and lubricants.
Oil producers helped by Saudi voluntary output cuts
Last month, when the OPEC+ countries were divided over whether to allow their previously-planned crude production increase to go ahead in January, they agreed a creative compromise to head off the threat of an oil market glut in the new year. The group’s production limit was raised by just 500,000 barrels a day for January, with any further increases to be trickled out only as agreed after monthly ministerial meetings. The first of those meetings was held this week, online as usual, and found another creative way to reach agreement.
The divisions have not gone away, as was indicated by the meeting that began on Monday spilling over into Tuesday. The agreed increase in the total production limit was very small: just 75,000 b/d more for February, and an additional 75,000 b/d in March. That extra allowance is mostly going to Russia, with a small amount extra for Kazakhstan, and all other OPEC+ members have the same limits as in January.
Beyond that agreement, Saudi Arabia announced that it was making a voluntary production cut of 1 million b/d for February and March. The effect will be to more than offset all the additional oil being brought on to the market in the first quarter of 2021 by the OPEC+ decisions since last month. Prince Abdulaziz bin Salman, the Saudi energy minister, said in a statement that the move was intended to “encourage OPEC+ participants to comply with the production cuts they have committed to, and compensate for their overproduction, in an effort to support the stability of global oil markets and accelerate its rebalancing”.
Oil prices responded with enthusiasm. Brent crude, which ended 2020 at $51.76 a barrel, was trading at about $55.40 on Friday morning.
Tesla founder Elon Musk has become — on paper — the world’s wealthiest man, following another surge in his company’s share price. Tesla stock has risen more than eight-fold in the past year, giving the company a market capitalisation that is greater than that of ExxonMobil, Chevron, Royal Dutch Shell, Total, BP and Eni put together.
The soaring interest in hydrogen as a zero-carbon energy vector has inspired the launch of a second ETF for investing in companies developing hydrogen-based technologies. The first was launched last month.
Spot LNG prices in Asia have risen to record highs as a result of cold weather, problems at several large producers, and delays to tanker traffic.
The US has had a week without any imports of crude from Saudi Arabia, for the first time in 35 years.
Kuta Beach in Bali, a popular tourist destination, has been cleared of 30 tons of trash, 70% of it plastic waste. Government workers, soldiers, police officers and boy scouts used backhoes and trucks to move the rubbish to landfill. Indonesia’s government last year launched a plan to cut ocean plastic waste by 70% by 2025, and to end plastic pollution altogether by 2040.
Britain’s power grid has been showing signs of strain, with tight margins this week as a result of cold weather at a time of low renewable generation and availability of other generators. National Grid ESO, Great Britain’s electricity system operator, said the grid had become “not harder, but more complex” to manage as a result of its increased reliance on renewable generation. It has been issuing Electricity Margin Notices calling for generators to make more capacity available, but said that “does not mean electricity supply is at risk”.
Geothermal energy has made little progress in the UK, but this week a new project in Cornwall signed a 10-year power purchase agreement to begin supplying electricity next year. The £20m United Downs project being developed by Geothermal Engineering Limited will supply at least 3 megawatts to Ecotricity, and is intended to enter service early in 2022. There are also plans to use heat from the project in an indoor “biome”, which would be used to produce “sustainable rum”.
And finally: a podcast recommendation. Over the holiday I discovered The Second Oil Age, a sci-fi thriller set in a futuristic production facility on the seabed in deep water. An entertaining listen once you have caught up with The Energy Gang and The Interchange.
Quote of the week
"We do that willingly and we do that with the purpose of supporting our economy, the economies of our colleagues… We did not ask any country to come forward and do any cuts." — Prince Abdulaziz Bin Salman, Saudi Arabia’s energy minister, explained his country’s decision to make a voluntary 1 million b/d cut in oil production in February and March.
Chart of the week
This comes from a report on renewable natural gas written by Wood Mackenzie analyst Sarah Sung, which was published shortly before the holidays. RNG, produced from food waste, agricultural waste, and landfills, has been growing fast in the US and is expected to continue to grow. However, it accounts for only a very small share of US consumption: the country’s total RNG production capacity was only