Friday, March 16, 2007

Friday Lunch at World Affairs I'm back attending World Affairs luncheons as merely a regular member (formerly a Board member, formerly the Administrative Assistant). It seemed good to be on the periphery and no longer in the middle of the event and responsible for things. The speaker, Stelian Dimitrov, a Bulgarian, is a Fulbright Professor at the Indiana University of Pennsylvania. He discussed Bulgaria, the Balkans and EU expansion. After 1989 and the fall of communism, Poland, Czech Republic and Hungry decided to make the transition from a central planned economy to market economy in a hurry---suffer the pain at once and move on. Their economies are doing well at this time. Bulgaria and Romania took the more gradual transition approach. (I'd like to tour these countries with the emphasis on business, the economy and politics. However, I can't find such a tour.) He gave a general review of the EU. An interesting fact--it has 27 members with 23 languages and 3 different alphabets. Slovenia has made a successful economic and political transition. They joined the EU in 2004. Bulgaria and Romania joined in 2007---January 1. This is changing the interaction between Bulgaria and its close non-EU Balkan neighbors. Serbia, Montenegro, and Macedonia now have to have visas to visit Bulgaria. Croatia is very close to being ready to join the EU but . . . . Then there is Turkey that has started EU negotiations with many stumbling blocks. Serbia, Montenegro, and Macedonia have declared EU aspirations. Albania is isolated! About this time my attention strayed to a man sitting across the room and his head of hair. I speculated as to whether his hair was a toupee or not. I had a significant urge to tug at his hair for verification purposes. The conclusion of the Stelian's presentation was about Bulgaria as a tourist destination. 11:48:25 PM    comment []

Breakfast at Commonwealth North At Commonwealth North this morning Ralph Samuels gave an excellent introductory/review presentation about the natural gas pipe line and some of the issues involved. State Revenue Oil revenue is 90 percent of the state budget Oil is worth 6 times the natural gas Oil companies pump the natural gas back into the oil well to pressurize the well to force the oil out as quickly as possible. They want to recover their up front costs of exploration and field development as soon as possible. The state will never cut the budget as a way out of the budget crisis Without additional oil and gas revenues, money to run the state will come from our pockets--the economy--to finance the state budget. It will be 10 years before the gas line is at full capacity Alaska has a lot of heavy oil and a lot of gas The Difference Between Oil Pipelines and Gas Lines An oil pipe line is a common carrier. With oil pipelines all companies, all producers, can send their oil down the pipeline. A gas line is a contract carrier---the producer who wants to send his gas down a gas pipeline has to contract (buy) a certain capacity for the long term---20 years. He has to pay the contracted amount whether he is shipping that much gas or not and whether the market price has dropped below his long-term calculations. Gas is currently $7.00 a cubic foot. With the oil pipeline as a common carrier, the State can shift between taking the oil royalties in-kind or in-value. They can make a switch every 90 days if necessary or advantageous. With the gas line as a contract carrier, the State has to choose one way of receiving their royalties and stay with the method--- a long-term, 20-year signed contract. The owner of the gas line should be a third party, an owner that does not own the gas, not a producer. Otherwise other explorers will be at a disadvantage because they are forced to pay their competitors to ship the gas. Owning a gas pipeline is like owning a toll road. Tariff A regulatory agency sets the tariff based on the amount of equity (the company[base ']s money) the company has used in building the gas line. The company would like to use as little of its own capital as possible. The tariff makes a huge difference in oil/gas company profit---$0.01 difference can equal $85B over a number of years. Bringing on an additional contracts and carrying more gas down the line is done through compression of the gas which lowers the overall cost of the transportation and lowers the tariff for all--up to a certain point, then it increases the tariff. The question then becomes who bares the cost of the raised tariff? Risks Involved in Building/Owning a Gas Line---Risks = Money Completion risk Cost overrun risk Firm transportation risk (contracts) Market price risk Political, tax, regulatory risk Jobs Jobs come with the exploration for oil and gas and the development stage. It takes very few people to run a gas line 7:28:23 PM    comment []

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