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ConocoPhillips Executive Forecasts Promising Energy Economy

ConocoPhillips

With the passage of a new oil tax regime in Senate Bill 21, companies in Alaska are considering new investments in the energy market.  KDLG’s Chase Cavanaugh has details of one company’s forecast of this new energy economy. 

Alaska’s Resource Development Council played host to the Chief Executive Officer of ConocoPhillips at its annual luncheon.  Ryan Lance’s presentation focused on the changing state of America’s energy economy.  Specifically, technological advances have allowed for cheap extraction of natural gas from fields of shale.  Their abundance in the lower 48 has allowed for a supply of cheap natural gas.  According to Lance, projections show that the US could become a net exporter, selling gas to satiate high demand abroad. 

“The global economy is strengthening, more people in the developing world are getting access to energy, and they can afford to pay for it now, and more countries want cleaner burning fuel. All these factors are increasing this international demand, and that’s particularly true in Asia-Pacific, which consumes more than it produces, and that translates into demand for LNG.”

He said Alaska has distinct advantages when it comes to exporting liquefied natural gas.  Specifically, the state has exported LNG for over 40 years, it’s close to the Asia-Pacific market, and overseas buyers will want a diverse supply of energy, leading to more demand.  While many LNG projects have been proposed across the country, Lance admits they require a high level of investment, are almost all in the preliminary phase, may face competition from other markets, and other limiting factors.

“To date, there’s been 40 North American export terminals proposed, and there’s terminals in other locations around the world as well. They’re predicated really on this low cost of supply has experienced because of this North American shale revolution. Studies predict little domestic impact from these imports, so very flat cost of supply curve across North America, but there are other limiting factors. The US will likely limit the amount of gas exports available, Canada has infrastructure issues, and there’s the potential oversupply from many of those competing projects. When you factor all of those in, the US and Canada will probably only capture about 40% of the new market that’s available in LNG.”

Nonetheless, he was optimistic about the coming business climate.  Beforehand, he said implementing the ACES tax policy, which was based on the market price of oil, lowered production and made Alaska a poor environment for investment.  With the passage of Senate Bill 21, which dismantled that tax regime, he says Alaska will be able to make use of its great potential resources, both oil and gas. 

“Alaska’s Clear and Equitable Shares Act came along. It raised taxes on production, so despite rising oil prices that we saw over the past two years, investment has stayed flat, and as a result production has been on a continuous decline. However, I want to make the point that it doesn’t imply that it’s game over for Alaska, not at all. We have enormous remaining potential here in Alaska. The Legacy Fields are still world class resources in this business, and the technological progress, it’s going to continue, there’s no holding it back. We absolutely know we must operate safely and we must practice good environmental stewardship. Fortunately, though the investment climate has improved with the passage of Senate Bill 21. Industry activity is picking up, our company is investing twice as much as we invested over the last five years. The stage is now set for a new wave of investment and development, and it’s about economic growth and good paying jobs, because we know that a healthy, robust oil industry makes Alaska’s North Slope LNG project even more competitive as we think about the options for that development.”

The State of Alaska signed a commercial agreement with the other sponsors of that project, including ConocoPhillips, in January.  It will lead to front-end engineering and design work in 2016. 

Lance concluded by saying ConocoPhillips is committed to new projects, with $2 billion in investment, including the Alaska LNG project.  He also urged those in attendance to vote against Proposition 1, which he says would reverse this beneficial business climate.