A key initiative of Gov. Mike Dunleavy – to coax North Slope producers back into the big Alaska LNG Project – is showing some results.

Last Thursday BP and ExxonMobil, two of the three major oil operators on the slope, agreed to contribute $20 million to help the state’s natural gas corporation in completing a federal licensing process for the proposed $43 billion LNG export project.

Alaska Lieutenant Governor Kevin Meyer made the announcement at the Alaska Oil and Gas Association’s annual conference in Anchorage.

More inside

Meyer said the state-owned Alaska Gasline Development Corporation, or AGDC, needs $30 million and another year to complete work on a Federal Energy Regulatory Commission license for Alaska LNG. The financial contribution from BP and ExxonMobil will cover two-thirds of that.

ConocoPhillips, a third major producer, is not part of the deal.

“This is a step forward, but it doesn’t get us a project yet,” Meyers said in an interview. For Alaska LNG to be built customers and financing would be needed. But to allow the project to falter now, so late in the licensing process, would be huge setback, he said.

Although the amount of money is small compared to the overall cost its symbolism is important. Three years ago the three slope companies pulled out of Alaska LNG because of the slump in energy markets. Although all three companies have said they will sell their gas on the slope to the project and BP has offered technical assistance, the fact that at least two of the companies are willing to put up cash is significant.

If built, Alaska LNG could export up to 20 million tons of liquefied natural gas from an LNG plant in Southcentral Alaska. Gas would be shipped from the North Slope, where 35 tcf of discovered, through an 800-mile 42-inch pipeline that is also planned.

The three producers including ConocoPhillips were in consortium with the state’s AGDC until 2016 when the companies withdrew due to falling energy prices and a mixed outlook for LNG demand. Former Alaska Gov. Bill Walker opted to continue work on the FERC licensing and the required Environmental Impact Statement with the producers’ encouragement and a draft EIS is expected this summer.

During his campaign for governor Dunleavy said it would be important to get the producers involved again because their financial muscle and expertise are needed to make the project reality.

Although technical work on the EIS and license has proceeded and is now far along the state’s own financial problems, due to a drop in oil revenues, have depleted AGDC’s reserves to the point that there will be insufficient money to get through the licensing work planned for 2020, officials of the corporation have said.

Dunleavy, who replaced Walker as governor last December, has been working to get the major slope producers back into Alaska LNG as partners and investors.

ConocoPhillips, which participated in funding the early conceptual and preliminary engineering, is not part of the current effort. The company has its hands full in developing and financing new North Slope oil discoveries and at this point would prefer to sell its gas at the wellhead to the AGDC project rather than be involved it its ownership, company spokesperson Natalie Lowman said earlier.

Earlier this year BP and ExxonMobil signed a technical assistance agreement with AGDC and meetings have been underway recently on ways of reducing the current $43 million cost estimate.

The three major slope producing companies own the 35 tcf of North Slope gas along with the state itself, owns about one fourth of the gas through its royalty and tax share of future production.

Meanwhile, a potential investment and LNG sales deal with three Chinese companies engineered by former governor Walker that would have involved three-fourths of Alaska LNG’s production is on the back burner amid the current U.S.-China trade battle. A final agreement between the state and a consortium of Sinopec, Bank of China and China Investment Corporation was to have been signed last December but was not.

When the potential China deal was announced AGDC had hopes of getting sales contracts and financing secured in early 2020, with a start of construction in 2021 and completion and first LNG shipments in 2024 or 2025. Earlier this spring AGDC said the project schedule is being extended.

Alaska LNG is important to the Matanuska-Susitna Borough because the route of the 41-inch gas pipeline is through the borough, assuring a major new source of energy for Mat-Su communities and creating potential for new industries based on natural gas.

Even though Mat-Su residents and businesses are supplied by gas produced in Cook Inlet, the gas fields there are aging and there have been no large new gas fields found in recent years like those discovered in the 1960s and 1970s.

The borough’s Port MacKenzie, on upper Cook Inlet, would play a major role in logistics support for construction, and a completion of the Alaska Railroad spur line to the port, now partly-built, would be needed.

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