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Paper pipeline

paper pipeline

Build your own paper pipeline/Albuquerque County Water Authority

A decision by the U.S. government to block the $1.2 billion Chinese purchase of MoneyGram might have concerned those hoping for a far bigger pile of Bejing cash to finance construction of an Alaska natural gas pipeline, but an authority on Asian investment doubts there will be any need for the Committee on Foreign Investment in the U.S. (CFIUS) to confront the financing of the 49th state’s long-awaited pipe dream.

Unfortunately, that’s because economist Derek Scissors is of the belief that a Chinese offer of willingness to consider a $44 billion investment in Alaska is just so much gas. Scissors is a resident scholar at the American Enterprise Institute, the chief economist of the China Beige Book, and the author of the China Global Investment Tracker.

“I seriously doubt the investment occurs at anything like the scale advertised,” he emailed in response to questions from craigmedred.news on Friday.

Memorandums of understanding (MOUs) with China companies outlining $43 billion in backing for the Alaska pipeline project and $83.7 billion for shale and other gas developments in West Virginia comprised more than half of a $250 billion deal President Donald Trump heralded after talks with the Chinese in early November.

“…Trump can return to the United States claiming to have snagged over $250 billion in deals from his maiden trip to Beijing,” Reuters reported at the time. “Whether those deals live up to the lofty price tag is another question altogether.”

Scissors went further Friday.

“Both the AK and the WV announcements are largely fake,” he said.

Scissors is not the first to suggest that the MOUs for natural gas development inked with the states of Alaska and West Virginia aren’t worth much more than the paper on which they were written.

A business columnist for the South China Morning Post opined that “Donald Trump’s US$250 billion of deals with China is ‘fake news’ at best.”

“….Most of these deals are little more than expressions of interest, others relate to projects that were already underway,” wrote Stephen Vines, “and helping to contribute to this impressive total are deals amounting to little more than aspirational arrangements with only a slender chance of being realised.”

Other media have offered similar views. A Bloomberg News report was headlined “Trump’s $250 Billion China Haul Features Little of Substance.”

“One of the larger deals was a joint development agreement to advance a liquefied natural gas project in Alaska, involving the state-run Alaska Gasline Development Corp. (AGDC), Sinopec, the China Investment Corp and the Bank of China,” the story said, “the project, which Alaska has pursued for years, would involve total investment of up to $43 billion.

“In a joint statement announcing the deal, Sinopec said its ‘interested in the possibility of’ purchasing LNG from Alaska. A Chinese official said the MOUs merely show China’s goodwill toward Trump, and would take years of negotiations to become real contracts.”

If they become contracts.

Hope eternal

Media in West Virginia and Alaska weren’t nearly so skeptical as Reuters or Bloomberg.

“West Virginia has a $83.7 billion investment agreement in place with a China-owned energy company for shale gas and chemical manufacturing projects in the state over the course of 20 years,” reported the Pulitzer-winning Charleston Gazette-Mail, although all the Mountain State had in place was an “understanding,” a promise of a possible future investment if everything worked out the way the Chinese wanted.

Alaska got the same let’s-all-agree-to-talk deal, but it was hard to tell from the pronouncement that came out of the Office of Gov. Bill Walker.

“PRESIDENTS TRUMP AND XI WITNESS HISTORIC SIGNING OF JOINT DEVELOPMENT AGREEMENT FOR ALASKA LNG,” proclaimed the governor’s press release.

Alaska  media grabbed the pronouncement and ran with it as if the promise of a possible future deal was actually a deal.

“Alaska gas line agency reaches deal with Chinese oil company, financial institutions,” headlined the Anchorage Daily News. 

“China backs landmark LNG pipeline deal with Alaska,”  was the Fairbanks Daily News-Miner version.

There was in this coverage faint echoes of former Alaska Gov. Sarah Palin’s words to the Republican National Convention when she accepted the party’s vice-presidential nomination in 2008:

“I fought to bring about the largest private-sector infrastructure project in North American history. And when that deal was struck, we began a nearly $40 billion natural gas pipeline to help lead America to energy independence.

“That pipeline, when the last section is laid and its valves are open, will lead America one step farther away from dependence on dangerous foreign powers that do not have our interests at heart.”

Palin’s project was a pipeline of hopes and handshakes, of could bes and might bes, that never turned a single shovel of dirt. Her successor in office, Alaska Gov. Sean Parnell was left to try another approach.

He signed an MOU with the pipeline company TransCanada and Foot Hills Pipelines to begin consideration of a pipeline from the Prudhoe Bay on the edge of the Arctic Ocean across Alaska to tidewater at Cook Inlet.

His MOU eventually developed into an agreement for the state, ExxonMobil, BP and ConocoPhillips – three of the largest independent oil companies in a world where national companies largely control the oil business – to work together in an effort to make real the gas line of which Alaska has dreamed since the 1960s.

Big dogs

ExxonMobil was put in charge. Exxon is the fifth largest oil company in the world. The only companies in front of it are state-owned giants – Saudi Aramco, which has revenues 70 percent larger than Exxon; Sinopec; China National Petroleum Corporation; and PetroChina.

All the three companies behind Aramco are under the ultimate control of the Chinese government. And together they generate revenues more than two and a half times that of Aramco and more than four and half times that of Exxon, a privately owned Houston-based company.

The numbers, which illustrate the potential for China to exert a lot of influence on global oil and gas markets, underline why CFIUS has been monitoring the Alaska gas line issues, according to sources connected to East Coast financiers.

The state of Alaska has thrown in with Sinopec, the biggest of the Chinese majors. The state took over the pipeline project from Exxon in 2016, a company Walker truly does not like. One anecdote sums it all.

When Walker was working for the Alaska Gasline Port Authority, an almost two-decade-old Valdez and Fairbanks North Star Borough scheme to finance and build a pipeline, he was called to Exxon headquarters in Houston to talk gas.

As the governor tells it, he arrived in the Texas city, admired the impressive skyscraper then owned by Exxon, and went inside expecting a meeting with someone high up in the 44-story structure.

Instead, he has said, Exxon employees punched the button on the elevator “and took me to the basement.” He didn’t get a gas deal, either. And he’s never forgotten. It didn’t take him long in office to decide Exxon, which wanted to slow the Alaska gas line project and wait for markets to improve, needed to go.

Exxon was replaced with the AGDC. Walker hired a half-million-dollar, Texas gas man to head the agency. And the two of them along with a handful of other state officials started courting interests in Japan, Korea and China.

The big prize came when Walker, a one-time Republican turned independent and now viewed as more closely aligned with Democrats than his old party, managed to work his way into Trump’s China deal.

As a political manuever, this was no mean feat. Walker had been previously aligned closely with Trump’s predecessor Barack Obama thanks to a lot of help from good friend Alice Rogoff, the millionaire ex-wife or soon to be ex-wife (it’s unclear whether the divorce is final yet) of billionaire David Rubenstein, one of the richest men in the country.

It was a slick move by Walker.

But the big and lingering question for Alaska is whether the arrangement made with the Chinese means anything. And if it does, will CFIUS, which has been increasingly worried about Chinese investment in the U.S., let the Chinese buy into Alaska to solidify their position as the most powerful player in global oil and gas market?

Scissors, a global authority on this subject, doesn’t think there’s a chance the gasline will ever get that far, but one never knows.

 

 

 

 

 

 

 

 

 

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14 replies »

  1. It seems like there is a Alaskan gas-realated scenario that no one is yet talking about (at least not publically). And the scenario is based on a new development (since Walker’s deal with China). ANWR. Now that ANWR has a possibility of being drilled, the question is – what kind of oil reservoirs lie under ANWR. Will the internal pressure of the reservoir mean free flowing oil wells? Will the oil be viscous and need electronic submersible pump technology? Or will the reservoirs need water and gas injection to increase reservoir pressure and force oil out of the well bores?

    It seems the most likely scenario is that ANWR oil wells will need gas injection to facilitate production. If not immediately, then as the field ages. Should gas injection be needed to maximize the production or ANWR wells, where will the gas most cost efficiently come from? I don’t know the answer to that question. And I’m sure Bill Walker and the AGDC don’t know either. Nobody knows. But 15 to 20 years from now, if gas is being sold to China and oil production comes online in ANWR, ANWR producers may wish they had a cheap source of gas to maximize oil production. In such a scenario – Alaskan oil production will need the gas more than China needs gas (at likely sub-market prices). No gas, or expensive gas, will mean that ANWR production will not be maximized. Or not happen at all.

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  2. Craig,
    Thank you for providing parents with school age children a final craft activity before school starts Monday.

    Ha ha I laughed so hard! All of Governor Walker’s pipelines have paper pipelines. He could teach a master class on the matter.

    Mia

    Sent from my iPhone

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  3. The only thing coming from China these days is Fentanyl and other synthetic opiates, but Jeff Sessions and Trump do not wish to speak on this.

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    • Let us not forget that Russia has been delivering LNG to China already as they have signed a 30 year deal valued at 400 billion.
      The gas pipeline from Russia to China is scheduled to be finished the end of 2018, so really how bad does China want to invest in a future commodity in the AK…seems unlikely to me.

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  4. I’m not saying we should not try to do a deal with Chinese businesses but we don’t want to do a bad deal either. I say to leverage our gas export value, we need to develop our own industries to strip the valuable petrochemicals from the gas and then re-inject the methane to produce more oil and gas. I think that is what Pt. Thompson is doing?. Genius! We cannot negotiate without a credible alternative.

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    • In the early days of TAPS, there was much talk of getting these NGLs (petrochemicals) from the gasline (when it came about). Very little is being said anymore of these NGLs and I suspect that is because many of them have already been shipped, along with the oil in TAPS.
      They would have been produced along with the oil and gas and no reason to re-inject them with the gas IMO.

      Liked by 1 person

      • So if the oil companies strip the NGL’s now, how does the State get compensated for its royalty share?

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      • Had the state been taking its royalty share in kind, they would have gotten their share at that time. If not, then State would have been compensated at rate of crude at the time (less shipping costs).
        This is just my opinion but I’m assuming some of these NGLs drop out with pressure drop and it would be these that would be better sent with crude in TAPS, rather than re-injected into the wells. I would be very surprised if oil cos. would be shouting this out but nobody is talking anymore about petrochemicals like they were in the late 70s.

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  5. It is all really quite ridiculous. These deals are one night stands – both sides use each other for a while and then leave in the morning.

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  6. I read with interest your diatribe against a future for Alaska in the natural gas world.
    The trouble with economists is that they are wrong as often as they are right. Your economist is certainly qualified to have an opinion but may not be the final word, as in “what if he’s wrong?”

    I do disagree with you on many points in your latest attempt. Here are a few:
    1) Can’t see how a person can disagree with the terms of a project that are yet to be determined.
    2) It is hard to equate two firm dates (June 15, 2018 and December 2018 for FID – Final Investment Decision) with years of negotiation.
    3) It was a Joint Development Agreement not an MOU (Memorandum of Agreement), as you note in your blog.
    4) To compare two weak and non-existent gas line plans of two former governors to the current agreement is pointless.
    5) I agree, Alaska needs to work with an entity that is far bigger than Exxon, as you wrote and illustrated.
    6) Doggone it, you forgot that AGDC was set up and funded by the Legislature, not Walker!
    7) Is the real problem that you can’t figure out what Walker is, politically or is it just that he may have gotten a deal for a gas line?
    8) Based on past Governors actions, I think it is ok for a Governor to approach the President without any “special” help as you have implied.
    9) What if the “slick move” by Walker was successful, what would you call it then?

    In summary, don’t forget that the Chinese really do need the natural gas as evidenced in the latest spot market price that is climbing towards $12 per MBT. The spot market is being driven by the Chinese as the rural farmers convert to natural gas at a faster rate than expected. The spot market is not the rate for long-term contracts but does affect it.These figures come from Bloomberg News/Market as of today.

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    • thanks for reading, Robin. and your credentials are exactly what? future investments are always speculative. nobody can see the future. but Scissors has expertise in Chinese behavior, and no skin in the game.
      i don’t profess to be an expert on China. he is.
      i didn’t formulate his answers. he did.
      all i did was ask some questions. that’s what reporters do.
      the questions seldom have clear right or wrong answers. Gov. Walker could have the right answers here. he could also be wrong.
      Exxon’s assessment was that in the short term, the LNG project is a money loser. the governor overruled Exxon. does he know more than the most successful private player in the oil and gas game?
      i don’t know.
      personally i think the whole discussion might be irrelevant. the Chinese are now a huge player in the global oil and gas market. it’s pretty staggering how they’ve grown their presence.
      one has to wonder if the CFIUS would let the Chinese further expand their footprint by tying up vast quantities of Alaska gas, and it’s unclear as to what China would do with that gas. you think all those “rural farmers” are converting to gas.
      most of those rural farmers are still burning wood to cook and heat their houses. China is in the midst of a massive rural electrification program. it is a lot cheaper to run power lines than pipelines, and the International Energy Agency forecasts that “average solar PV projects in China become cheaper than both new and existing gas-fired power plants around 2020 and cheaper than new coal-fired capacity and onshore wind by 2030.” (https://www.iea.org/weo/china/)
      so if China electrifies, and sources much of that energy with solar, what do it do with long-term contracts for a bunch of cheap gas?
      is it possible they collect on those contracts and resell the gas at the higher prices of the future, because gas prices will eventually go up?
      now that would be the perfect Alaska deal.
      are you by any chance in the employ of the Chinese? i only ask because of your observation that “Alaska needs to work with an entity that is far bigger than Exxon.”
      i’m no fan of Exxon, but i’m not real comfortable with the idea the state of Alaska should be embracing China too tightly. China’s record on human rights and democracy isn’t good. (https://www.hrw.org/world-report/2017/country-chapters/china-and-tibet)

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  7. Why would anybody buy $10/therm gas when the World is awash in $2-3/therm gas? Alaska oil was only developed for geopolitical reasons, reasons that don’t really obtain anymore, and the only reason Alaska oil has any economic viability today is that the infrastructure is already in place and paid for.

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