International markets set stage for port development

PALMER — The Fukushima Daiichi nuclear accident of 2011 had rippling effects on global eco systems and world markets. Among them is a new Japan energy strategy that turns away from nuclear, and toward liquefied natural gas.

The country shuttered the last of its nuclear reactors in 2013. Japan is the largest importer of LNG in the world, with 44 percent of its electricity generated by LNG in 2015, according to its Agency for Natural Resources and Energy annual energy report. Most of the nuclear offset for the country has come from LNG.

That’s been potentially good news for the struggling Port MacKenzie, where the consortium Resources-Energy, Inc. could build out a natural gas export project with a special financing deal from the Japanese government that will help it secure LNG resources.

“If it moves forward, it’ll be the biggest thing that’s ever hit the Mat-Su Borough,” said Port Director Marc Van Dongen. “It’s an $800 million to a billion-dollar investment to build a plant at the port. It would provide numerous jobs for Valley workers. And it would instantly make the port profitable.”

The project would export a million tons of LNG per year to two communities in western Japan, Van Dongen said.

But the world turns, and every context has many moving parts. In late November of last year, ConocoPhillips announced it would sell its Nikiski LNG plant. Bids for the plant are expected to open in mid-March.

That’s caught the attention of REI, which is now considering its Nikiski options against the proposed Port MacKenzie project.

“There are advantages and disadvantages to that plant,” Von Dongen said. “It was built in 1969. It’s quite old, and REI’s planning to do at least a 30-year operation, and I would suspect it would go longer than that. They’d have to do substantial renovations.”

But there’s another major potential investment in the port in the works.

Thank Canada.

The Alberta to Alaska railway project, or A2A for short, would be an even bigger boon to the port.

The $14-to-$20-billion rail project would run from Alberta to Delta Junction, and it originally sought to build a heating facility at that terminal before feeding Canadian bitumen into the Alaska pipeline.

But after a cost analysis, Van Dongen said, railing the bitumen to Port MacKenzie and then exporting it proved a more attractive option.

“If that project moves forward, it would be on the magnitude of 20 times bigger than what this LNG project (REI) would be,” Van Dongen said. “It would be very large. They’d be looking at, initially, five trains a day bringing in bitumen. And that would work up to nine trains a day as they increase production.”

The bitumen comes from the oil sands of Alberta. The Alberta Energy Regulator is predicting that bitumen production there, currently at 2.1 million barrels per day, will hit 4.1 million barrels per day by the year 2023.

“It’s still in the preliminary stages, although they were talking like this project could happen as fast as 2020,” Van Dongen said, referring to an October meeting between A2A and the borough.

Van Dongen said that seems like a speedy timeline.

“It’s 1,400 miles of rail line with numerous river crossings and land ownership issues with Native corporations along the route that have to get worked out.”

That’s a challenge that’s optimistically framed by the A2A website as an opportunity for “Alaska Natives and Canadian First Nations” with land holdings along the proposed railroad route to “gain unprecedented ownership of a major enterprise.”

Van Dongen cautioned changes at the national level could impact the A2A project. Keystone XL is resubmitting permits for an Alberta-to-U.S. pipeline, now under an administration expected to behave more favorably toward fossil fuels. It could become more attractive for Alberta bitumen producers who were expecting to use the proposed A2A rail line, to export out through the Keystone XL pipeline instead.

But even with a Keystone XL pipeline in place, an A2A project that includes Port MacKenzie could still be economically attractive and put to a variety of uses, Van Dongen said.

If A2A goes through as currently described in its pre-feasability study, the project would mean around $5.7 billion of investment at the port alone.

And, it would make up the $125 million gap in financing the borough needs to finish the rail connection to Port MacKenzie from Houston.

“We’re two-thirds of the way done, and then the railroad between Fairbanks and Delta Junction hasn’t been competed yet. They need more funds to complete the rail,” Van Dongen said. “I would assume a project of this magnitude could handle paying to finish both of those connections.”

That could theoretically solve a larger logistical problem for transporting goods through Alaska, Van Dongen said.

As it stands now, he said, ships arrive to the Anchorage port full and leave empty. But if Port MacKenzie were connected to a rail line connecting to Canada -- and ultimately extending to the lower 48 -- those empty container ships could be filled with commodities such as coal, woodchips, iron ore, and sand and gravel, then backhauled to Asia.

It’s a logistical transport dream Van Dongen said he didn’t think he’d see realized in Alaska for another 50 years, that feels closer now with the A2A proposal.

At the same time, Van Dongen’s got his eye on coal prices.

Alaska coal company Usibelli pushed pause on its coal exports through Seward in late 2015 after U.S. coal prices reached a six-year low. But now, those prices are nosing back up.

A proposed Wishbone Hill coal mine by Usibelli has proved controversial in the Valley, but if it got up and running, that would be another positive impact for the port, Van Dongen said. A state proposal to have LNG shipped from Cook Inlet to the Interior would be another important use.

But as the world turns, uncertainty reigns the future of Port MacKenzie.

For the moment.

“This all remains to be seen,” Van Dongen said.

But some new developments are set more or less in stone.

Two new operations start up at the port this year, Van Dongen said. Estoria Forest products out of Estoria, Oregon will set up a new woodchip and saw-log facility. And Alaska Metal Company is set to begin exporting scrap metal from the port in late summer.