Who's Passing Gas?

Wow, so Exxon wants to sell some of its North Slope gas to Fairbanks Natural Gas Company, LLC! It is always amusing to see that “LLC” addition to a business name, “Limited Liability Corporation”? I thought only a government could claim such liability. I am going to start placing it after my name, S. Pam MaGee, LLC, herein “C” stands for citizen! Anyway, what is rather interesting is why Exxon? And since this state has the option of “Royalty-in-Kind” or “Royalty-in-Value”, with this deal the citizens of the “Corrupt Bastard” state - a.k.a. Alaska - are once again posed to loose out “Not”! Bottom line, what was good for the bastards but could not be good for us, as proved by history over and over again, this time around it may be a different scenario. Royalty-in-Kind is defined as taking possession of one’s resources as it is, to do whatever an owner wishes – save it, snort it, sell it or use it. Royalty-in-Value is taking the value of the resource and letting somebody else do the marketing and handle the transporting headaches. In a nutshell, if your want a barrel of oil you can take a barrel of oil “In-Kind”, same with a cubic foot of natural gas. With the oil the state gets by virtue of land lease ownership, BP takes this oil, ships it to market and the state collects the cash, “In-Value”. So I ask, why did not this outfit approach the state for some “In-Kind” natural gas? It is only a minute fraction of what is available down hole! And the state retains ownership of 12.5 percent of that gas reserved in the reservoir. It has been done before for oil, this “In-Kind” thing. For a long time MAPCO purchased oil “In-Kind” from the state and sent it to that company’s refinery in North Pole, Alaska. That was OK until the legislature decided to tag a premium on “our” oil, an extra dollar. I guess the lawbreaking lawmakers never had a class in “competition”. So one must realize that there is something real fishy behind this deal between Giant EXXON and the Fairbanks “little” gas guy. First and foremost, it is not the first time North Slope natural gas has been sold in the state. What is wrong with our legislative branch? According to Charlie “Where’s My Diaper” Huggins, “It’s a breakthrough on getting gas off the North Slope”. And according to Palin lawmakers, “They viewed the deal as highly significant, marking the first time that a major gas holder has agreed to sell gas off the Slope.” And according to Mrs. Vogue Mature, “It’s proof that the producers will commercialize their gas when given the opportunity.” Egad! For some 15-years by now, Norgasco has purchased “North Slope” gas and distributes that commodity to Deadhorse, right up in Prudhoe Bay. According to “old” outdated records, in 2004 this company had a customer base of about 52 consumers, mostly oil field service companies like HailBurton. And for some 30-years by now, a whole lot of natural gas has been transported by a pipeline from Prudhoe Bay all the way down to Pump Station 4 of the Trans-Alaska-Pipeline. This gas transported down an 8” pipeline at high pressure is used to power the Rolls-Royce Avon jet engines used to pump oil over the mountains to Valdez. That gas is purchased and accrues a tariff for the transporting efforts, like to pay for compression and pipeline maintenance, just like a regulated pipeline. It is not free by any stretch of the imagination. But for years, the oil companies – who own the gas and pass the gas – they have artificially inflated that tariff to benefit their bottom line, as it is used for crude oil deliveries in a very convoluted and complex calculation. Basically, a methodology that is so complicated that mathematical PHD gurus get headaches over when finally getting through the 200-page calculation. In a nutshell, it is a cost that has a direct write-off effect. The higher the better! So it is evidence that could support the historical cost to transport natural gas should ever there come a natural gas pipeline to take “our” gas outside. The proof is in this pudding. How come “our” legislatures always say it is “Big Oil’s” gas? Goes to show that the corruption scandal has not cured anything as of yet! Now natural gas does not have a whole lot of hidden costs associated with it, like crude oil inherently does. Hidden costs are very convenient from an economic standpoint. A few pennies here and a few pennies there, get the drift? So basically, there exists over 30-years of data to show what it costs too actually ship natural gas down a pipeline – right here in our own backyard! So yes, “Big Oil” has shot themselves in the foot, with such a high tariff structure. See, if an outside entity like TransCanada could confiscate that data, then they could justifiably use it to establish a transport tariff when a gas line is built. Resource transportation companies – like TransCanada and Enstar – they don’t own the commodity but make a profit for the transport efforts. So the higher the better for them also! But this state’s natural gas is in competition with Canadian gas, so the higher the tariff the lower the cost of gas from the producers, as competition rules. So “Big Oil” would have to lower the sales cost, because of the tariff offset! So now we see a backtracking effort to establish a real rate structure that upholds their bottom line. And that is what is going on here, a means to manipulate the future of North Slope natural gas. History is so interesting! Now Fairbanks Natural Gas has a rather interesting history. This company that liquefies gas in efforts to truck it to its customer base has not shown a profit in the red forever? Its customer base has increased form 35 in 1998 to a customer base of 712 in 2004. In those years respectfully, a loss of 300-thousand to 1.9-million. To liquefy natural gas is a costly process. For years, this outfit was able to survive economically by liquefying gas taken out of Enstar’s Beluga gas line that runs along Pt. McKenzie Road over in the valley. The pressure was high enough wherein the liquid state came easy and cheap, like free! But over time, with the Beluga gas field becoming depleted and a lower pressure in the pipeline, the liquefying process became too costly. Couple that with rising costs to secure natural gas contracts from the Cook Inlet producers, well this outfit was posed to loose - this company could not make a profit. But that wasn’t the intent, to make money, not just yet. The plan was to keep control of the distribution infrastructure in Fairbanks, and when and if a gas line headed south, this small mom and pop business owned by an outside investment firm would be sitting pretty as the exclusive one and only. Just like Enstar Natural Gas Company - also owned by outsiders - enjoys in and around Anchorage. Natural gas out of the ground has very little hidden costs. It is useable out of the well. So it can only fetch a market rate. Buyers aren’t going to pay an arm and a leg for something that can be purchased cheaper from Canada, like mentioned beforehand, this state’s natural gas competitor. So this company from Fairbanks has become the guinea pig for “Big Oil”, to establish a reasonable tariff structure. It is being done only because this state is being infiltrated by “Outsiders”. This is good for us, as a lower tariff justifies a higher gas price. That helps your PFD. Finally, something that works in our favor, like being in bed with “Big Oil” for a change. Wish they would change the sheets! See, the cost to truck the liquefied natural gas from Prudhoe Bay to Fairbanks is astronomical. But is will set the stage for the costs to get gas to my stove. So a “no brainer” is the fact that a pipeline from up there to Fairbanks, it will be a much cheaper tariff cost, as pipelines once constructed still remain the cheapest way to get things from point A to point B. Now like mentioned before, the transport tariff that is used now on the 300-mile gas pipeline from Prudhoe to the Brooks Range, that tariff is unbelievable. But for 30-years who would have cared? It is their pipeline and nobody gets harmed by such a high charge. So this is what is going on behind the scenes, a means to establish a defensible tariff structure base as it is only a matter of time before somebody plays the game right and gets a pipeline south. And what it looks like now, it may be an “Outsider”. So in the event, “Big Alaska Oil” is looking towards the future. A lower tariff allows a maximization of income for selling the gas at a competitive premium rate. So behind the scenes of secrecy, whatever deal was worked out between David and Goliath, it is in accordance with past practices to manipulate whoever and however so the bottom line does not sink. That is why the state could not have involved itself in selling “In-Kind” gas to the Fairbanks gas guy. Exxon, is a silent partner so to speak with the workings of the existing TAPS natural gas pipeline, so it is up to them to establish what is an acceptable tariff. It will piss off the Canadians trying to build a pipeline. And if the Fairbanks gas guy accepts “contaminated gas” from Exxon - as all the natural gas that has been used for tertiary oil recovery is by now contaminated - then TransCanada can kiss its desires to have “Big Oil” build a conditioning plant at “Big Oil’s “ expense goodbye. Amazing how they think and manipulate things, this time maybe to “our” advantage, but I really doubt it! Somewhere along the line there is a legislature looking for a handout!

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