Political infighting is taking place in Alaska over the state’s hydrocarbon future. This time, however, it’s not over its oil production which has been steadily declining since reaching a peak of over 2 million barrels per day (b/d) in 1988 to a current average of just over 500,000 b/d. Its over the state’s plans to tap vast supplies of associated natural gas. In an effort to offset budget losses from declining oil production – as well as plunging oil prices – Alaska needs to exploits its gas, mostly on the state’s prolific North Slope. How and even if that will happen is shrouded in doubt as Alaska’s newly elected Gov. Bill Walker confronts legislators over which course of action to take.
Earlier this month, Walker ordered a 45-day review of the state’s participation in the proposed $45-$65 billion Alaska LNG Project that hopes to tap lucrative LNG markets in Asia. Project partners include: BP, ConocoPhillips, ExxonMobil, and TransCanada (who will move state-owned gas, 25% of total production) through TransCanada’s share of the pipeline. The state-owned Alaska Gasline Development Corp. (AGDC) is the fifth project partner.
Walker’s 45-day review disclosure comes amid an already heated political backdrop in the state over the Alaska LNG Project and a smaller state-led North Slope gas pipeline, the Alaska Stand Alone Project (ASAP), that is planned as an alternative to supply gas to Alaskan communities in case the larger project fails.
Larry Persily, former federal gas co-coordinator for Alaska and now an oil and gas adviser, told Breaking Energy that the governor campaigned last fall on the premise that the state’s deal with Exxon, BP, ConocoPhillips and TransCanada for the Alaska LNG project was flawed. “He generally was pretty negative toward the partnership deal,” Persily said. “Now, the governor has softened a bit over the deal, but still likely has serious doubts about it,” he said.
“He [the governor] needs to explain to the public that he has looked at it [the project] in depth and made an informed decision one way or the other. The 45-day review gives him time to make good on campaign rhetoric and make a better decision,” Persily said. However, Persily also questioned the governor’s timing. “My question would be: It’s April, and you took office in December, and you know the project had deadlines for 2015, so why did you wait until now to decide you needed to review what should have been reviewed months ago? Having said that, maybe the review will convince him that this is a workable deal.”
Others are also voicing their displeasure over Walker’s move, including state legislators, analysts and media. A commentary in the Alaska Journal of Commence took direct aim at the governor’s actions over the state’s gas plans, listing a series of moves, including the 45-day project review. “A few rookie missteps are understandable for a new governor, but wasting precious time is not,” the article said.
However, other important questions have to be answered, especially if the project ever comes to fruition. Will it be able to compete against a field of tough competitors from the US and Papua New Guinea as well as Australia? Persily agreed that the Alaska LNG project has a cost disadvantage because it has to construct an 800-mile pipeline needed to move gas from the North Slope to a liquefaction plant in Nikiski, (about 60 air miles southwest of Anchorage), while Alaska also has high construction costs. But, he added that the project also has some significant advantages. “The gas stream coming out of Prudhoe Bay will be richer (higher Btu value) than US utility-grade gas out of the Gulf Coast and higher than coal-seam gas out of Australia. That makes Alaska’s gas more attractive to buyers,” he said.
Persily added that the project has other advantages as well: “The Alaska-to-Japan LNG carrier voyage is significantly shorter than tanker runs from the US Gulf Coast, Qatar, even British Columbia,” he said. “A Nikiski-to-Tokyo voyage is about one-third the time than sailing from the US Gulf.”
“Another advantage is that Alaska’s gas is proven — no production risk whatsoever,” Persily said. “The North Slope producers have been pulling 8 bcf a day out of the Prudhoe reservoir for decades, re-injecting the gas until such time there is a pipeline to move it to market. Now it’s just a matter of diverting some of that flow.”
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