A total of 210,000 gallons of oil leaked Thursday from the Keystone pipeline in South Dakota, the pipeline’s operator, TransCanada, said.
Crews shut down the pipeline Thursday morning, and officials are investigating the cause of the leak, which occurred about three miles southeast of the town of Amherst, said Brian Walsh, a spokesman for the state’s Department of Environment and Natural Resources.
This is the largest Keystone oil spill to date in South Dakota, Walsh said. The leak comes just days before Nebraska officials announce a decision on whether the proposed Keystone XL Pipeline, a sister project, can move forward.
In April 2016, there was a 400-barrel release — or 16,800 gallons — with the majority of the oil cleanup completed in two months, Walsh said.
About 5,000 barrels of oil spilled Thursday.
“It is a below-ground pipeline, but some oil has surfaced above ground to the grass,” Walsh said. “It will be a few days until they can excavate and get in borings to see if there is groundwater contamination.”
There were no initial reports of the oil spill affecting waterways, water systems or wildlife, he said.
TransCanada said it was working with state and federal agencies.
“The safety of the public and environment are our top priorities and we will continue to provide updates as they become available,” the company said.
The Environmental Protection Agency is monitoring the situation and will provide resources and assistance if needed, a spokesman said.
“EPA is aware of the spill and is receiving periodic updates from the state of South Dakota, which is overseeing response activity at the spill site,” he said.
Concerns about the spill
The Keystone Pipeline system stretches more than 2,600 miles, from Hardisty, Alberta, east into Manitoba and then south to Texas, according to TransCanada. The pipeline transports crude oil from Canada.
The proposed Keystone XL Pipeline, which would stretch from Hardisty to Steele City, Nebraska, would complete the proposed system by cutting through Montana and South Dakota.
The sections of pipeline affected stretch from Hardisty to Cushing, Oklahoma, and to Wood River, Illinois, the company said.
The spill occurred in the same county as part of the Lake Traverse Reservation. The leak location is not on Sioux property, but it is adjacent to it and has historical value, said Dave Flute, tribal chairman for Sisseton Wahpeton Sioux Tribe.
“We want to know how long is it going to take to dig this plume of contaminated soil and how can we be reassured, without a doubt, that it has not and will not seep into the aquifer,” he said.
Flute, along with the tribal emergency management director and the manager of the tribal office of environmental protection, arrived Friday morning at the staging area of the leak site to meet with representatives from TransCanada. Flute said he was out there to offer assistance and to understand the cause of the leak and the environmental impacts it might pose.
“We want to find out, was there a crack in the pipe? We don’t know. We want to get that information,” Flute said. “More importantly, and to stay positive, they did clean up the site, they did contain it.”
Environmental activist group Greenpeace said the spill shows the new pipeline in Nebraska should not be approved.
“The Nebraska Public Service Commission needs to take a close look at this spill,” said Rachel Rye Butler of Greenpeace. “A permit approval allowing Canadian oil company TransCanada to build Keystone XL is a thumbs-up to likely spills in the future.”
The approval followed years of intense debate over the pipeline amid hefty opposition from environmental groups, who argued the pipeline supports the extraction of crude oil from oil sands, which pumps about 17% more greenhouse gases than standard crude oil extraction. Environmentalists also opposed the pipeline because it would cut across the Ogallala Aquifer, one of the world’s largest underground deposits of fresh water.
Tar sands oil is much thicker and stickier than traditional oil, significantly complicating cleanup efforts. The fact it’s thicker also means it needs to be combined with other hazardous materials to allow it to be transported in pipelines.
Native American groups have argued the pipeline would cut across their sovereign lands.
Trump said the new pipeline will be a big win for American workers, but critics say it won’t be, because most of the jobs would be temporary.
Dakota Access pipeline
TransCanada said Thursday that the section of Keystone pipe that was leaking was isolated within 15 minutes after a drop in pressure was detected.
That pipeline, which runs through both Dakotas and two other states, drew fierce resistance from the Standing Rock Sioux tribe in North Dakota, the tribe’s allies and environmentalists.
Opposition to the pipeline sparked monthslong protests, with as many as 10,000 people participating during the peak of the demonstrations. Clashes with police at the protests turned violent at times, with one woman nearly losing her arm after an explosion last November.
Talk to a Big Oil executive these days, and the chances are they’ll steer the conversation toward gas.
“In 20 years, we will not be known as oil and gas companies, but as gas and oil companies,” Patrick Pouyanne, chief executive officer of French giant Total SA, told a conference in St. Petersburg last month.
Pouyanne and his peers have pitched the fuel as a bridge between a fossil-fuel past and a carbon-free future. Gas emits less pollution than oil and can be burned to produce the power that grids will need for electric cars.
But with the cost of renewable technologies falling sharply, some are warning that the outlook may not be so rosy. Forecasters are beginning to talk about peak gas demand, spurred by the growth of alternative power supplies, in the same breath as peak oil consumption, caused by the gradual demise of the internal combustion engine.
In a long-term outlook published last month, Bloomberg New Energy Finance predicted that gas’s market share in global power generation will drop from 23 percent last year to 16 percent by 2040, and that gas-fired power generation capacity will start to decline after 2031. BP Plc has highlighted “risks to gas demand” as a key uncertainty, including the possibility that consumption plateaus by 2035, “squeezed out by non-fossil fuels.”
If those forecasts play out, it has huge implications for Total, BP and other oil majors already grappling with a possible surge in electric car use. Gas-exporting nations most notably Russia, Qatar and Australia will also be exposed. The global gas industry, based on multi-billion dollar pipelines and export plants, has decades long investment cycles and decisions being made today rely on rising demand until the middle of the century.
The energy transition is “fundamentally a force that cannot be stopped,” Royal Dutch Shell Plc Chief Executive Officer Ben van Beurden said last month. “It is both policy and public sentiment, but also technology that is driving it.” Oil demand will probably peak in the 2030s or 2040s, he said, while “gas will not peak before the 40s if not in the 50s.”
Shell is still betting heavily on the future of gas after last year’s $50 billion purchase of BG Group Plc, but it’s also planning to spend $1 billion a year on new energy technologies such as renewables.
“There’s no question that gas usage declines over time,” Geisha Williams, CEO of PG&E Corp, the largest investor-owned utility in the U.S., said at a conference in San Francisco. “But I don’t think it’s overnight. I think it’s something that we have to manage.”
Until recently, the energy industry had been hoping that natural gas would play the role of a bridge fuel between polluting coal and emissions-free renewables. That’s because producing electricity from gas generates around half the carbon dioxide emissions that burning coal does. The International Energy Agency predicted a “golden age of gas.”
But rapid changes in the economics of renewables, combined with low coal prices, have put that outlook in doubt. The IEA last week predicted global gas demand for power generation would rise just 1 percent a year in the next six years, down from 4 percent a year in 2004-2010.
Driving the shift has been a sharp decline in the cost of building new renewable power –- which, unlike generating electricity from coal or gas, is almost free to run after the initial capital investment has been made.
“Wind and solar are just getting too cheap, too fast” for gas to play a transitional role, said Seb Henbest, lead author of the BNEF report.
The consultant estimates that onshore wind and solar power are already competitive with coal and gas in Germany, and that within five years they will be cheaper to build than new coal and gas plants in China, the U.S. and India. By the late 2020s, it will start to even be cheaper to build new onshore wind and solar power than run existing coal and gas plants.
The trends that are undercutting optimism about the global gas outlook are already playing out in Europe. Natural gas demand remains well below a 2010 peak, as greater energy efficiency, rapid adoption of renewables and resilient coal consumption cut into its market share.
The IEA does not see European gas demand returning to its 2010 high. In its base case scenario, European gas demand would be at the same level in 2040 as in 2020.
Still, most forecasts anticipate strong growth globally for natural gas demand for two decades or more. In the U.S., plentiful cheap supplies thanks to the shale boom helped gas displace coal as the primary fuel for power generation for the first time last year.
The IEA sees global natural gas demand growing almost 50 percent by 2040. Exxon Mobil Corp. sees a 44 percent increase. BP’s base case forecast is for a 38 percent increase in demand by 2035.
Several things could upend those predictions.
Much of the forecast growth in gas demand is dependent on China and India adopting policies that favor gas rather than coal in an attempt to improve air quality. The Chinese government, for example, has set a goal of getting as much as 10 percent of its energy from gas by 2020 and 15 percent by 2030, up from 6 percent in 2015. The country also plans to more than double import capacity by 2025. If that doesn’t happen, gas demand could peak sooner.
And the power sector, while the largest single source of natural gas demand, only accounts for 40 percent of the market. By contrast, nearly 60 percent of global oil use is as a transport fuel and vulnerable to the rise of electric vehicles.
“The future of oil is down to whether electric vehicles take off or not; the future of gas is quite nuanced,” said James Henderson, director of natural gas at the Oxford Institute for Energy Studies. “Gas producers are talking about how to adapt to a different type of gas market.”
While the outlook for wind and solar for power generation appears limitless, renewables will have a harder time replacing fossil fuels in other sectors. The IEA last week said industry will drive gas demand’s 1.6 percent a year growth through 2022 as it replaces crude oil as a raw material for petrochemical manufacturing, especially in the U.S.
“Gas will play a significant role in the decades to come,” Johannes Teyssen, chief executive officer of EON SE, told Bloomberg on May 24. “Coal will decline much, much faster, but gas probably needs also to accept that its own role will not grow to eternity.”
The search for oil offshore southern Jamaica continues as a second series of exploration activities, specifically 2D seismic surveys, are expected to begin before the end of this week.
The exploration activities, which are being underatken by Tullow Oil — an independent oil and gas exploration and production company based in the United Kingdom — as part of a Production Sharing Agreement that it signed with the Petroleum Corporation of Jamaica (PCJ) in 2014, are forms of marine surveys conducted to identify sub-surface structures that may contain hydrocarbon (oil and gas) deposits.
The search is expected to cover a marine area of approximately 32,065 square kilometres of the Walter Morant area, comprising of 11 individual blocks.
In 2015, Tullow Oil conducted a series of exploration activities, including a bathymetric (sea floor) survey, soil sampling and an environmental survey, to assess priority habitats and species, fishing activity and seabed habitats in the area. Tullow Oil acquired 3,000 kilometres of 2D seismic data in the first quarter of last year and is now planning to acquire an additional 670 kilometres of 2D seismic data to further develop an understanding of the area.
The upcoming surveys will be conducted by seismic company Seabird Exploration, through the use of its specially outfitted vessel, the Harrier Explorer, and will focus on gathering data on an area between Blower Rock at Pedro Banks and the offshore seas south of Clarendon.
“We’ve seen some of the sheens from the oil seeps that helps us understand that there might be a source kitchen and that is one of the components necessary. You need to have a kitchen… and we are hoping to go ahead and confirm that, through the seismic programme,” Non-Op Business Unit Manager at Tullow Oil Eric Bauer told the
Jamaica Observer yesterday during a tour of the Harrier Explorer, which was docked at the port of Kingston.
Minister of Science, Energy and Technology Andrew Wheatley, who got a tour of the vessel, stated that he was impressed that they have reached the stage where they are going into 2D seismic studies, which he said will help further the search towards finding prospective oil or gas deposits in the selected area.
“We are cognisant of the fact that it’s a process, but we just want to use the opportunity to keep the Jamaican public informed. It’s a partnership between Government and Tullow, but also a partnership between the Government and people, because we want our citizens to be aware.
“We are now at the stage where we are doing the 2D seismic study and this is going to take around six days for the collection of data, and that data will be analysed over a one-year period and if it is positive enough, we move to the 3D seismic survey,” he told the press.
He explained that the 3D seismic survey gives a more detailed idea as to the layer of land, and if that comes up positive, then they will move towards the actual drilling of the first exploration well.
Wheatley also expressed his appreciation to both Tullow and Seabird Exploration for their efforts to balance environmental consideration along with the country’s own development, through their environmental protection efforts and by forming relationships with fishermen and other relevant stakeholders.
Party chief for the Harrier Explorer, David Healy, also underscored the importance of local involvement, highlighting that one of the two support vessels that will be accompanying the Harrier Explorer is a local one.
“We will need both as it’s very important to have not just somebody who knows the job that we do… but local knowledge is very important as well. So it’s always important for us to bring in as many local people as we can, because they know (the) area, what’s happening and when it happens,” Healy explained.
“When you speak to people, we don’t want them to think that we are just going to come in there and destroy their fishing areas or anything of the sort, we also have to protect our own stuff, and so it’s beneficial to both of us if we can work together, so it’s good support,” he said.
Last week, I wrote that OPEC needs friends and a miracle to re-balance the oil market. Could President Trump be that unwitting buddy, providing the miracle by tearing up the nuclear agreement with Iran and removing almost a million barrels a day of supply at a stroke?
Trump’s number one priority is to dismantle the “disastrous” deal — although his to-do list might have changed since saying that back in March. As luck would have it, that daily million barrels is about the same size as the cut OPEC needs to make, as I calculated last week.
Can he do it? Yes, despite assertions to the contrary from Iran’s President Rouhani and a slew of analysts. Here’s how:
The Joint Comprehensive Plan of Action, as the deal is snappily titled, wasn’t ratified by Congress, but brought into force by President Obama via executive order. Trump could rescind that. The fall-out would be messy, but it could be done (in theory).
There’s another way too, enshrined within the agreement itself. The dispute resolution mechanism allows any signatory to refer a perceived breach of the deal’s terms to the joint commission created to oversee the accord. If the complaining party isn’t satisfied with the outcome and believes the breach constitutes “significant non-compliance”, it can refer it to the U.N. Security Council. The Security Council would then vote — and here’s the killer blow — – not on whether to re-impose sanctions, but on whether to “continue the sanctions lifting.”
That might not sound like a big difference, but it’s critical. By framing the vote this way, the U.S. could, in theory, veto the resolution. All the U.N. sanctions on Iran would then be re-imposed. Simples.
That just leaves EU sanctions, which prohibited — among other things — the importing of Iranian oil into EU countries. We might expect some sort of European backlash against unwinding the deal, but it might not be very effective.
The tortuous process of re-establishing Iran’s oil trade with Europe shows that only too clearly. Although there were willing buyers and a very willing seller, the difficulty came in finding insurers who would underwrite the transactions, or shippers to carry the crude. All the big re-insurers had at least some U.S. involvement and they were extremely hesitant to pick up the business — even with the apparent backing of the Obama administration. They would drop the business like a scalding hot potato if the new president killed the deal. End of Iranian oil flows to Europe.
Elsewhere, important Asian buyers were threatened in the past with the loss of access to the U.S. banking system to persuade them to cut their purchases of Iranian. This tactic would probably work again.
Of course, Iran would treat the move as grounds to abandon its own commitments. Coming shortly before Iran’s presidential election in May, it would be a huge boost to Tehran’s hardliners. You’d expect life to become more difficult for the Americans in Iraq, where it’s engaged alongside Iranian-backed militias in ousting Islamic State from its last stronghold in the country — another Trump priority.
But at least the crude price would recover, which would be great for U.S. oil, if not so good for motorists. I guess the new president will have to choose who to please.
Governor of the Bank of Jamaica (BOJ) Brian Wynter and Financial Secretary Everton McFarlane have come out defending the costly ‘insurance’ Jamaica has taken out against oil prices as the expiration date nears and a new one is being prepared for Parliament’s approval.
Hedging is an investment position used to reduce substantial losses that could be incurred based on actual or perceived fluctuating developments.
Last year June, Jamaica entered an arrangement with Citibank, which covers the period from June 2015 to December 2016, and for which the bank has been paid approximately J$3.3 billion (US$27.9 million) in premiums. The arrangement involved three contracts.
Under the arrangement, Jamaica would get a payout if oil prices exceed US$66 per barrel. Up to yesterday, the West Texas Intermediate crude rate used under the hedge put the latest oil prices at US$51.60 per barrel.
McFarlane told Parliament’s Public Administration and Appropriations Committee (PAAC) yesterday that the Parliament would be approached to approve funds to extend the hedge as no provision was made in the 2016-2017 National Budget, approved in May.
“In the coming Supplementary Estimates, we are looking to find the resources so that we’re covered a longer period of time,” he said. He added in a Gleaner interview later that “the details as to the period to be covered and the level of coverage are to be finalised in short order.”
He said the resources would come from budgetary reallocations.
NUMBER OF BARRELS DECLINING
The BOJ Governor also noted that with just two months to go under the last contract, the number of barrels has been declining.
“We’re not covering the full monthly amount now. This is the tail end of what was being hedged over a year ago. It’s a little under 200,000 barrels per month, whereas when you’re covering (fully), you’d be up there at about 700,000 or 800,000 barrels per month,” he said.
Concerns had been raised that because prices have remained low, Jamaica was losing millions under what some critics held was an unnecessary hedge.
PAAC member Franklyn Witter, using similar concerns, questioned whether the risks that gave rise to the hedge still existed.
“You have a projection over the medium term for oil to remain within $52 per barrel, so given that projection, why do you think it would be important to continue with the hedge?”
McFarlane responded that the risks still existed and that “Jamaica’s interest in continuing the hedge is based on the loss of foreign exchange that can entail or the budgetary loss that may arise in the event of significantly higher prices”.
Wynter, meanwhile, noted that investors have questioned how Jamaica would cope when oil prices increase even if other risks are low.
“There are several different answers to give. One answer is to build the Net International Reserves up by an extra billion so that we have it sitting down. The other extreme is to pay the $20 million or $30 million, still a lot of money, which, if nothing happens, you lose the premium, but if that event occurs, you get the payout that someone else has to have to pay you.
“We do look at what makes more sense,” he added. “Accumulating reserves is good for all sorts [of] reasons, but it’s also costly. So what we’ve done is try to strike the balance.”
The hedge has been funded by a special consumption tax on fuel.
The Private Sector Organisation of Jamaica has supported it.
No date has been given for the tabling of a supplementary budget, which the Finance Minister Audley Shaw has indicated will be coming.
In January, while on opposition benches, Shaw said the administration may have been ill-advised in pursuing the hedge.
History is made! #MontrealProtocol countries agree to curb powerful greenhouse gases in largest climate breakthrough since Paris.
“The amendment to the Montreal Protocol on Substances that Deplete the Ozone Layer endorsed in Kigali today is the single largest contribution the world has made towards keeping the global temperature rise ‘well below’ 2 degrees Celsius, a target agreed at the Paris climate conference last year,” the UN agency said in a statement Saturday.
According to the agency, the agreed reduction in HFCs could prevent up to 0.5 degrees Celsius (0.9 degrees Fahrenheit) of global warming by the end of this century. The deal was reached at a Meeting of the Parties to the Montreal Protocol, which started Thursday. Several high-profile leaders attended the meeting, including US Secretary of State John Kerry.
“It is not often you get a chance to have a 0.5-degree centigrade reduction by taking one single step together as countries — each doing different things perhaps at different times, but getting the job done,” Kerry said in a speech Friday.
“If we continue to remember the high stakes for every country on Earth, the global transition to a clean-energy economy is going to accelerate.”
The European Union also welcomed the deal. Miguel Arias Cañete, EU commissioner for climate action and energy, described it as “huge win for the climate” and the first step toward delivering on promises made on climate change in Paris in December.
The agreement in Kigali comes only days after enough countries ratified the Paris Agreement on climate change — which calls for the world to become carbon neutral this century — to become international law.
“Last year in Paris, we promised to keep the world safe from the worst effects of climate change. Today, we are following through on that promise,” said Erik Solheim, executive director of the UN Environment Program.
President Barack Obama also hailed the Kigali deal.
“Today’s agreement caps off a critical 10 days in our global efforts to combat climate change,” the US leader said. “In addition to today’s amendment, countries last week crossed the threshold for the Paris Agreement to enter into force and reached a deal to constrain international aviation emissions.
“Together, these steps show that, while diplomacy is never easy, we can work together to leave our children a planet that is safer, more prosperous, more secure and more free than the one that was left for us.”
Growing demand for cooling
The rapid increase in HFC emissions — put by the UN agency at 10% a year — is due in part to a growing demand for cooling, particularly in developing countries with hot climates and an expanding middle class, the agency said.
The agreement includes provisions for hot countries to reduce their use of HFCs at a slower rate. Developed countries will start to reduce the use of HFCs by 2019, while developing nations have been given a longer time frame in which to freeze their use of the damaging gases.
Funding for measures to reduce HFC use and research into alternatives is to be finalized next year, the UN agency said.
Kerry recalled how the world’s nations had worked together on climate change since first meeting in the 1980s in Montreal in a bid to protect the world’s fragile ozone layer from ozone-depleting chemicals such as chlorofluorocarbons.
“Thanks to the cooperation and the courage that we summoned at that critical time almost 30 years ago, the hole in the ozone layer — which had been growing at an alarming rate, and which was the reason that we came together — that hole is now shrinking, and it’s on its way to full repair,” he said.
“So we proved that we can make a difference. We proved that science has a value. We proved that if we come together in a forum like this, we can actually do things that affect the entire planet.”
Kerry also acknowledged that HFCs had turned out not to be the best solution for the problem of ozone depletion.
“We replaced the ozone depleting substances, but we came to understand the hard way that HFCs may be safe for the ozone layer, but they are disastrous for our climate, in many cases thousands of times more damaging than carbon dioxide,” he said.
Used in everyday household items such as refrigerators and air conditioners, he said, “in a single year, these substances emit as much CO2 equivalent as nearly 300 coal-fired power plants.”
The head of Rwanda’s climate change unit, Faustin Munyazikwiye, also welcomed the world’s commitment on HFCs after long hours of negotiations in Kigali.
Outside view of International Conference Center in Algiers, Algeria, where energy ministers from OPEC and other oil-producing countries are gathered to attend the opening session of the 15th International Energy Forum Ministerial meeting in Algiers, Algeria.
OPEC nations reached a preliminary agreement on Wednesday to curb oil production for the first time since the global financial crisis eight years ago, pushing up prices that had sunken over the past two years and weakened the economies of oil-producing nations.
Mohammed Bin Saleh Al-Sada, Qatar’s energy minister and current president of OPEC, announced the deal after several hours of talks in the Algerian capital. The levels must still be finalised at an OPEC meeting in Vienna in November.
The preliminary deal will limit output from the Organisation of the Petroleum Exporting Countries to between 32.5 million and 33 million barrels per day, he said. Current output is estimated at 33.2 million barrels per day.
Benchmark United States crude jumped US$2.38, or 5.3 per cent, to US$47.05 a barrel in New York. Brent crude, the international standard, was up US$2.72, or 5.9 per cent, to US$48.69 a barrel in London.
Long-running disagreements between regional rivals Saudi Arabia and Iran had dimmed hopes for a deal at Wednesday’s talks.
Iran had been resistant to cutting production, as it is trying to restore its oil industry since emerging from international sanctions over its nuclear program earlier this year. According to Wednesday’s deal, Iran exceptionally will be allowed to increase production to 3.7 million barrels a day, according to Algerian participants at the meeting. It is currently estimated to be pumping around 3.6 million.
The OPEC officials met informally on the sidelines of an energy conference in Algiers to try to find common ground on how to support oil markets.
“We reached a very positive deal,” said Nigerian Oil Minister Emmanuel Ibe Kachikwu. He said all countries will reduce output but the specific quotas will be set in Vienna in November.
Earlier, Iranian Petroleum Minister Bijan Namdar Zanganeh had played down the OPEC gathering, calling it “just a consultation meeting”.
The price of crude oil has fallen sharply since mid-2014, when it was over US$100 a barrel, dropping below US$30 at the start of this year.
Saudi Arabia, the world’s biggest oil producer and Iran’s rival for power in the Middle East, appeared to be more amenable to some sort of production limit, certainly more so than in April when OPEC failed to agree on measures to curb supplies.
Saudi Energy Minister Khalid Al-Falih this week promised to “support any decision aimed at stabilising the market”.
Over the past couple of years, OPEC countries, led by Saudi Arabia, had been willing to let the oil price drop as a means of driving some US shale oil and gas producers out of business. Shale oil and gas requires a higher price to break even.
Those lower prices have hurt many oil-producing nations hard, particularly OPEC members Venezuela and Nigeria, but also Russia and Brazil.
Golar LNG, the company which secured a two-year contract to ship liquefied natural gas (LNG) to Jamaica, posted huge net losses, has a working capital deficit and its chief executive officer resigned last month.
The shipping company continues to suffer from a slowdown of the LNG industry during a global oil price drop, symptomised by almost US$700 million of negative working capital.
The Jamaica contract is a bright spot for the company amid declining revenue.
“Partially mitigating the loss of this income was revenue earned by the Golar Arctic which commenced its two-year FSU service with New Fortress Energy, offshore Jamaica,” said Golar in financial results issued this week.
Golar also aims to refinance debt and launch new growth initiatives to adapt to the soft global LNG market.
New Fortress, an American company, is contracted by Jamaica Public Service Company to supply LNG to its Bogue plant. The pipeline and terminal have been developed but delivery of the gas, which should have started in April, has been pushed back to August.
On Wednesday, New Fortress promised responses on the implications of Golar’s finances for its contract, but had not followed through up to press time.
Golar reported net losses of US$80 million for its first quarter ending March. The loss was mainly due to its US$61.5 million in operating expenses towering over its US$18.6 million in revenues for the period.
Adjusted for exceptional items, losses would only have amounted to US$41.2 million.
Fundamentally, its revenue gap has defined the accounts since at least 2014. Consequently, Golar posted a US$197.6-million net loss for financial year 2015 and US$43 million in net losses for 2014.
Last month, CEO Gary Smith resigned and its former CEO, Oscar Spieler, retook control of the company. Golar cited restructuring as a necessary move to adapt to the new LNG reality, and the reason for the resignation.
Spieler, a naval architect, previously served as CEO of Golar between July 2009 and June 2011. He has a “successful track record of delivering complex offshore and shipping-related projects,” stated the financials. A release from the company indicated that both men previously traded the CEO position. Smith, who was promoted to CEO in January 2015, previously served as Golar CEO between March 2006 and July 2009.
Amid these changes, the company’s current assets
of US$530 million were overpowered by current liabilities of US$1.23 billion as at March 2016, resulting in negative working capital of US$670 million.
Burning through cash
Additionally, Golar has been burning though its cash holdings, which dropped from US$376 million to US$93 million in the space of one year.
The company still holds a strong US$1.8 billion in equity, but it fell from US$2.2 billion a year earlier.
Golar explained that the fast-growing LNG industry is going through a “rapid transformation” where monetisation of stranded gas, lowering the cost of LNG production and the opening of new markets are all critical success factors.
“An anticipated delinking of LNG prices from oil prices will also create additional demand for LNG. The traditional approach to executing LNG projects favoured by many oil majors may not cost effectively meet this new demand,” the company said.
Natural gas prices are reportedly at seven-year lows. The commodity is currently trading around US$2.40 per 1,000 cubic feet in the US.
At the same time, however, oil continues to trade below US$50 per barrel, which is still less than half the price crude was trading at two years ago.
United States (US) Vice-President Joe Biden has warned regional leaders that volatile oil prices will return. On this basis, he is urging them to use every opportunity to explore clean and alternative energy sources to bolster the prosperity of the Caribbean and Central America.
“This is a moment of opportunity to turn that progress into sustainable energy security that will endure when volatile oil prices return. And they will return,” Biden cautioned the heads of government during the US-Caribbean-Central American Energy Summit in Washington, DC, held earlier this month.
“The good news is that we’re at a nexus for transforming, with transformative opportunities here. Low oil prices mean more money this day is available for investment in new energy infrastructure,” said Biden.
“It’s equivalent to US$1 billion of stimulus just in the region [and] lower energy prices. Our abundance of natural gas provides a critical, clear transition fuel as we’re moving towards adopting renewable technologies.”
Biden said strengthening energy security was among the focus areas for himself and US President Barack Obama.
He noted that North America – Mexico, the US and Canada – is the epicentre of energy production in the world and pointed out that his country recently inaugurated a liquefied natural gas export terminal that has just sent its first cargo of gas to Latin America.
The US had also announced a deal to export natural gas to Jamaica during last year’s staging of the Summit.
“Here’s the truth. We want you to be energy secure so more people across this region can – your region can start businesses, connect to the Internet, generate opportunities, attract foreign investment, grow, grow. The more you grow, the more you prosper, the better off my country is. And it strengthens our security, as well as yours. And it opens up new opportunities for shared economic growth,” he said.
The Jamaica Public Service Company Ltd (JPS) has officially concluded work to convert the Bogue Power Plant in Montego Bay, St James, to dual fuel capability.
The plant is now able to use natural gas, as well as automotive diesel fuel, which it has been using since its commissioning in 2004. The work, which started in January of this year, was completed on April 26, on time and within budget, at a cost of US$22.7 million or J$2.7 billion.
The arrival of liquefied natural gas, which is being undertaken by US-based New Fortress Energy, is expected by August of this year, at which point the newly converted Bogue Power Plant will begin to use the more environmentally- friendly fuel. The multimillion-dollar project will add significantly to the country’s energy diversity, fuel security, flexible generation, and production of clean energy.
Senior Vice-President of Generation Joseph Williams notes: “This is just the first phase of a deepening fuel diversification process which is taking place at JPS. We are excited to be a leader of this revolutionary move, which will not only see a more diverse energy landscape, but also possibilities for the commercial and transportation sectors of our country.”
The Bogue Combined Cycle Power Plant produces 120MW of the country’s average daily use of over 600MW of electricity.