Major review of Alaska LNG projects continue

Technical teams from the state-owned Alaska Gasline Development Corp., BP and ExxonMobil will meet in Houston next week to begin a major review of the big Alaska LNG Project. The goal is to find potential cost reductions in the proposed $43 billion project.

Discussions will begin Tuesday and will last for several days. The overall review, to test the project’s economic feasibility, is expected to be done in late April, said Tim Fitzpatrick, AGDC’s external affairs vice president.

“We have confirmed that about 25 technical folks from ExxonMobil, BP and AGDC will meet in Houston on the cost reduction workshops,” Fitzpatrick said.

The initiative grows out of a request earlier this year from Gov. Mike Dunleavy for the state corporation to assess the project’s economics as well as to seek North Slope gas producers as investors and project managers.

BP and ExxonMobil signed agreements March 8 to provide technical assistance to AGDC, partly is response to Dunleavy’s request.

On another front, meetings are set in Shanghai next month with three Chinese companies, led by Sinopec, who have expressed interest in purchasing LNG from Alaska, Fitzpatrick said. Meetings will take place during the LNG 2019 conference, set for April 1 through April 5, and will include Bank of China and China Investment Corp., who have been working with Sinopec in discussions with AGDC.

In a briefing last Friday to committees of the state Legislature, AGDC’s interim CEO, Joe Dubler, said the state corporation will explain the new direction being taken by AGDC that will include what was considered an overly-aggressive development schedule as well as the potential involvement with the slope producers.

Dubler told the legislators that the Chinese companies are pleased that the project will be put on a more realistic schedule. Previously AGDC had hoped to have the project in construction in 2021 and to be completed in 2024. That would have required a final investment decision this year, however, and that will not happen.

“They (the Chinese) were not comfortable with the prior schedule and they are happy with the direction we are now going. This is slower and more gradual. If big projects like this are schedule-driven they fail,” he said.

Three North Slope producers, including ConocoPhillips as well as BP and ExxonMobil, had been part of a four-party consortium with AGDC formed to work on the big LNG project, but the companies withdrew in 2015 citing poor economics.

Former Gov. Bill Walker directed the state corporation to continue work on its own, mainly on the U.S. Federal Energy Regulatory Commission license.

BP and ExxonMobil’s March 8 agreements to provide technical expertise are non-binding, Dubler told the legislators, “but they are important first steps.”

“We would like to have third-party participation in completing the FERC process, and that is why we entered into the MOU (Memorandum of Understanding). The producers, because they are gas owners, seemed a logical place to start,” Dubler said. ConocoPhillips is not part of the MOU but has said it would sell its gas if Alaska LNG were built.

Dubler also said AGDC will have to have partners engaged when it does final Front-End Engineering and Design for the project, which will be a costly undertaking.

One problem AGDC has is that it will be short of cash in completing work on the FERC license and will need an infusion of capital from an investor to do that. The state corporation will have $15.3 million on hand at the end of state Fiscal Year 2019, which is June 30, Dubler said.

At least $20 million will be needed to complete the licensing work, however. “We hope to get partners in to do this, but we’ll see,” Dubler said.

The reorganization of Alaska LNG will take the state out of the driver’s seat in owning and managing the project, and returning to the prior arrangement with the consortium where private companies were in major ownership and management positions.

There are still big challenges facing Alaska LNG, Dubler told the legislators. “There are a lot of (LNG) projects worldwide that are right at tidewater, and which don’t have to build and 800-mile pipeline,” Dubler said.

The price of LNG in Asia markets, now about $8 per mmBTU, is another challenge. “We think we can get close to that but we’ll know at the end of the review. If we can get close we’ll recommend continuing,” work on Alaska LNG, he said.

One advantage Alaska has is it is closer to Asia than competitors on the U.S. Gulf Coast, with seven to eight days of sailing compared with 20 days to 30 days from the gulf, Dubler said. Also, the gas resource is well identified, at about 35 tcf of proven reserves.

Meanwhile, the Draft Environmental Impact Statement for Alaska LNG is due in June, and this will give the public the first look at how the Federal Energy Regulatory Commission will weigh the environmental tradeoffs involved in the project. FERC is preparing the DEIS with the help of an independent contractor, and is charged by federal law with selecting the least environmentally disruptive alternative

Matanuska-Susitna Borough officials will be looking at how FERC will evaluate recent information the borough has provided regarding the suitability of Port MacKenzie as a pipeline terminus and LNG plant site compared with Nikiski, near Kenai, which AGDC has proposed.

The borough identified several gaps in data provided to FERC in comparing the two sites which may have erroneously tilted the decision by the project developers to favor Nikiski.

If the LNG plant were to be built at Port MacKenzie if would shorten the length of the pipeline from the North Slope by about 50 miles for a considerable cost savings, Mat-Su officials have pointed out.