Full steam ahead on December LNG sales to China

Alaska Gas Development Corp. is moving steadily toward a December deadline for agreements to sell North Slope liquefied natural gas, or LNG, to Chinese buyers and so far there have been no big hiccups, managers of the state gas corporation told its Board of Directors May 10.

An announcement May 4 by BP, one of three major North Slope gas owners, that an agreement with AGDC had been reached on key terms of a gas sales agreement is a significant development, the corporation’s CEO, Keith Meyer, told the board.

“Securing a gas supply is ‘mission critical’ is giving confidence to potential LNG buyers,” Meyer said. “This is a binding precedent agreement, which means there is clarity on volume and price,” the key components of a final gas sales agreement hoped to be concluded later this year, Meyer said.

The price and volume terms were not disclosed. In a May 7 press release Gov. Bill Walker said the agreement gives AGDC the right to purchase BP’s share of 30 trillion cubic feet of gas owned by private producing companies in the Prudhoe Bay and Point Thomson fields.

Meyer said negotiations for similar agreements are underway with ConocoPhillips and ExxonMobil, the two other major North Slope gas owners.

The state itself is also a major gas owner through its royalty share of gas.

The combined known reserves of gas total 36 trillion cubic feet in the two fields, the company and state holdings combined, but geologists estimate that an additional 200 trillion cubic feet of conventional gas will eventually be found once a pipeline is built and gas exploration begins, Meyer told the board.

Another 100 trillion cubic feet of unconventional gas, extracted from shale, hydrates or coal deposits, is also estimated, he said.

One cause for concern is a new development among competitors, Meyer said. Qatar, a major Persian Gulf gas and LNG producer, is in discussions with Exxon Mobil on a partnership in developing Lower 48 shale gas resources that would include a major stake in a planned U.S. Gulf of Mexico LNG export project.

“This would give Qatar a major U.S. presence, and a ‘U.S. flag’ to march under in exporting LNG. They would be a very significant new competitor,” because of Qatar’s long involvement and established links in the world LNG business.

Although the Alaska LNG Project is large and expensive Meyer believes it can still be competitive with LNG exporters on the U.S. gulf coast, which he sees as the major competition to the Alaska project. If the sales, financing and equity investment agreements with Chinese companies, which include Sinopec, Bank of China and China Investment Corp., come together as expected, the Alaska project should be able to deliver LNG to Asia at a price competitive with the U.S. gulf, Meyer has said in previous briefings.

Another significant milestone near at hand for AGDC is approval by the U.S. Army Corps of Engineers on a Final Environmental Impact Statement for the Alaska Stand-Alone Gas Project, or ASAP. This is a separate, but smaller gas project the state has pursued as a backstop to supply gas within the state if the large Alaska LNG Project were to falter.

AGDC has been working to secure permits for ASAP, which would be, if built, a 36-inch pipeline from the North Slope to the Matanuska-Susitna Borough, in contrast to the 42-inch pipe proposed for Alaska LNG, which would have its pipeline go to Nikiski, on the Kenai Peninsula, and the large LNG plant planned there.

Dave Haugen, an AGDC vice president and senior advisor, said the Corps expects to complete the FEIS in June. This is important because the pipeline routes for the ASAP and Alaska LNG projects follow the same corridor from the slope to the Mat-Su region. Once the final Record of Decision is issued by the Corps on ASAP a right-of-way across federal lands will be granted that can also be used by Alaska LNG.

Since a right-of-way across state lands has already been issued the Alaska LNG Project will have 85 percent of its needed right-of-way secured by the end of the year, Haugen said.

“This is a big deal for major investors because it will give them confidence,” he said.

In other developments, the state corporation is responding to additional questions from the Federal Energy Regulatory Commission, which must grant a license for Alaska LNG, and other federal agencies, Haugen and Fritz Krusen, ADGC’s vice president for LNG, told the board.

In another development, Goldman Sachs, now retained by AGDC to advice on financing and a planned equity solicitation, had a team in Alaska this week to start work.

AGDC needs to secure about $800 million in equity investment later this year to finance final engineering and early procurement work, Meyer had said earlier.

Goldman Sachs is a major international finance advisory firm but it also has a long history in financing Alaska projects, said Lieza Wilcox, AGDC’s vice president for commercial and economics.

Sinopec, the major Chinese energy company that would be a major buyer of LNG in the deal is also considering an equity investment, Wilcox told AGDC’s board. China Investment Corp., that nation’s sovereign wealth fund, is a likely equity investor.

State appropriations for the project are gradually being drawn down. By December AGDC will have about $34.6 million on hand, down from about $72 million in December, the corporation’s finance manager, Philip Sullivan, told the board.

The major expenses during 2018 will be on continued work with regulatory agencies for costs related to commercial negotiations and marketing, according to materials made available for AGDC’s board at the meeting.