Two express interest in Alaska LNG Project

Alaska’s state gas corporation has received two expressions of interest in reserving capacity in the Alaska LNG Project at the close of a two-month solicitation, a spokeswoman for the Alaska Gasline Development Corp., or AGDC, said late Friday.

Proposals came from two major North Slope gas owners, AGDC spokeswoman Rosetta Alcantra said. It is an important signal of support for the large project even amid the poor market conditions for large energy projects.

The state corporation also proposed to reserve capacity for itself, which is to be made available to other gas shippers and in-state customers for the gas.

The state corporation had requested non-binding expressions of interest in capacity in the $40 billion-plus project which could also offer “foundation customer” status, meaning that favorable terms would be offered to the initial customers.

The state corporation will use the information from the mainly to guide planning for the project, which includes a large gas treatment plant on the North Slope, an 800-mile 42-inch pipeline and a large liquefied natural gas, or LNG, plant at Nikiski, on the Kenai Peninsula.

In AGDC’s current plan the Alaska LNG Project could be operational in 2025, which would mean construction would have to start in 2019 or 2020.

“We cannot identify the two North Slope companies who submitted proposals, not the amount of volume for which they seek capacity,” Alcantra said. She could also not divulge volume and capacity AGDC would reserve for itself.

“One of the two proposals from the producers was not in exact compliance with the terms of the solicitation. However, the other was in compliance,” Alcantra said. She did not say in what way the one proposal was deficient, however.

Three major oil and gas companies own the bulk of the 35 tcf of gas reserves identified on the North Slope: BP, ConocoPhillips and ExxonMobil, with the majority of the gas owned by ExxonMobil.

All three companies were formerly in a consortium with the state AGDC to do initial engineering on the Alaska LNG Project, which would cost over $40 billion and export up to 20 million tons of LNG yearly. The project includes a gas treatment plant on the North Slope, an 800-mile, 42-inch gas pipeline to be built from the slope and a large LNG plant on the Kenai Peninsula southern Alaska.

ADGC president Keith Meyer said the state is also considering ways the project could be built smaller at about 10 million tons/year of LNG production and then expand in increments. A plan like that would cut about $9 billion off the estimated capital cost of a full-scale project, Meyer said in a recent briefing.

Since 2013 the four partners in the consortium have spent over $600 million to do pre-Front End Engineering and Design and a preliminary application to the Federal Energy Regulatory Commission.

Last year the companies elected to not participate further in the project because of low energy prices and the surplus of LNG in Pacific markets, but the state is continuing work on the project. All three of the slope producers have pledged support to the state in that effort and have also agreed to sell gas to AGDC if not to other buyers on the basis of commercial terms.

AGDC is continuing work on the application to the FERC with hopes that the agency will begin a federal Environmental Impact Statement process later this year.

The state corporation also has authority to purchase capacity in the Alaska LNG Project to ship state-owned royalty gas, which amounts to about one-eighth of the gas production or 2.5 million tons of LNG yearly if the project is fully developed. If Alaska elects to take its production tax in the form of gas, which has been proposed, the amount of gas shipped and marketed by AGDC could increase to as much as one-fourth of production, or 5 million tons of LNG yearly.

AGDC also has authority to purchase and ship gas from producers who do not elect to reserve capacity, so the amount of LNG marketed by the state could increase further. The state corporation already has an agreement in place with one slope gas owner, ConocoPhillips, to do joint marketing of LNG, but whether ConocoPhillips is one of the gas owners expressing an interest in capacity is not known.

Meanwhile, the amount of natural gas used within the state could easily be handled by the pipeline capacity AGDC reserves for itself, its CEO Meyer said. In its planning the corporation has set aside about 500 million cubic feet per day for in-state use, which is about twice the estimated 250 million cubic feet used in the state now for power generation and space heating, Meyer said at a recent briefing to Commonwealth North, an Anchorage-based business group.

The excess capacity reserved for in-state gas would allow for future growth, such as manufacturing of fertilizer or other products made from gas.

Alaska LNG could also be an important new source of revenue to state government, Meyer told Commonwealth North members. Financial models developed by AGDC show the project resulting in about $2.5 billion per year in new income to the treasury, mostly from sales of state-owned gas and profits from the state equity share of the project, and $5 billion per year once debt is paid off.

That assumes North Slope producers would be paid between $1 per million British Thermal Units to $2 per million Btus, for the gas Meyer said. One million Btus is roughly equal to one thousand cubic feet, of mcf, of gas.

By way of comparison, utilities in Southcentral Alaska now purchase gas from Cook Inlet producers for $7 per million Btus to $8 per million Btus.