With new cost reductions Alaska LNG Project now competitive with U.S gulf to supplying gas to Asia, consulting firm says

A new report on the economic viability of the Alaska LNG Project shows the big project can compete with liquefied natural gas, or LNG, projects on the U.S. Gulf coast that now supply markets in Asia via the Panama Canal.

Wood Mackenzie, an international energy consulting firm, said LNG from Alaska using natural gas from the North Slope can be delivered in Asia for about $6.70 per Metric Million British Thermal Unit, or MMBtu.

That’s about or below what it costs now for Asian LNG buyers to purchase and ship liquefied gas from the U.S gulf, the report said.

The “spot” market price of imported LNG is expected to be remain in the $8 per MMBtu range for some time, which is higher than the new estimate for liquefied gas from Alaska, Wood Mackenzie said.

“This analysis demonstrates that Alaska LNG can deliver at competitive prices,” said Frank Richards, CEO of the Alaska Gas Development Corp., a state corporation working to facilitate the big project.

“The report also comes on the heels of a recent climate study that showed that LNG from Alaska will reduce greenhouse gas emissions by 77 million metric tons of carbon dioxide,” Richards said.

This means a 50 percent reduction of greenhouse gas emissions for power generation from coal widely used in Asia, assuming that countries allow imported gas to displace coal now used for power.

Alaska thus offers an attractive option for Asians buyers to reduce harmful emissions, Richards said.

Alaska LNG could have big impacts – and benefits – for the Matanuska-Susitna Borough and its communities. If built, the 48-inch high-pressure gas pipeline be constructed through the western part of the borough.

It will boost to the borough’s industrial tax base, by how much depending on how property taxes on the project are configured. That could ease pressure on local taxpayers.

Construction would create a lot of jobs in the Mat-Su and throughout Southcentral and Interior Alaska, during the two to three years for the pipeline to be built.

But there would also be congestion on roads and demands on public services like police, emergency responders and Mat-Su Regional Hospital.

For the long term, however, the new gas pipeline would bring less expensive natural gas. AGDC has estimated that the project could supply gas to regional utilities for about $5 per million cubic feet, or mmcf compared with about $8 per mmcf that utilities now pay Hilcorp Energy for gas produced in Cook Inlet and the Kenai Peninsula.

Wood Mackenzie last looked at the Alaska LNG Project in 2016. The updated cost just released is 43 percent below Wood Mackenzie’s estimate in 2016 for the “cost of service,” or the total cost of delivering the LNG.

A key factor in the lower cost of delivery is a lower capital cost for the project, which has been reduced from $44 billion estimated on 2016 to $38.6 billion, or 12 percent, after the companies involved and AGDC developed a series of cost reduction steps.\

A change in the financing structure provides opportunities for additional savings.

Alaska LNG involves a proposed 800-mile, 42-inch gas pipeline built from the North Slope to a large gas liquefaction plant planned at Nikiski, on the Kenai Peninsula south of Anchorage.

The project would also include a large gas treatment plant at Prudhoe Bay, on the North Slope, to remove carbon dioxide from the gas. Additionally, a 60-mile lateral pipeline would be built east from Prudhoe Bay to bring gas from Point Thomson, a large gas field. Gas from Prudhoe Bay and Point Thomson would be produced and shipped through the pipeline.

Richards said Wood Mackenzie’s independent analysis basically validates the internal economic assessments done by AGDC and two large North Slope gas owners working with the state corporation, ExxonMobil and Hilcorp Energy, along with BP, which sold its Alaska holdings to Hilcorp last year. BP continues its involvement because of the company’s interest in the international LNG business.

Richards said Alaska LNG is now working to attract private investors to the project and to essentially break it into three components, the gas treatment plant on the slope, the 800-mile pipeline and the large LNG plant, and to attract investors and owners in each of the three.

The LNG plant is the costliest part of the three and AGDC, in its role as facilitator, is now in discussions with potential partners in the liquefaction plant, Richards said.

It’s possible that a deal may be wrapped up by summer. “However, these are large and complicated projects and they take time,” he said. It’s possible that ADGC may own part of Alaska LNG if it is built – past configurations of the project had the state corporation as a partner.

However, even if AGDC has no ownership stake Alaska will still benefit substantially through new revenues from royalties and taxes, a huge boost to the state’s economy from construction, and eventually more oil discoveries as industry begins to explore for gas with a pipeline available.

Oil and gas are often found together in underground rock formations.

There are other opportunities for further cost reductions, Wood MacKenzie said, such as a potential large federal loan guarantee made available in the new federal infrastructure bill.