Alaska and the oil companies developing the Prudhoe Bay and Point Thompson resources located on the remote North Slope are sitting on a lot of gas that can be used by Alaskan consumers and exported if the stakeholders can work through a maze of financial and technical considerations. With a cost estimated between $45 and $65 billion (2012 dollars), there is a mountain of details to be worked out before a final investment decision is made, but the project has advanced since Breaking Energy’s last conversation with Larry Persily, Federal Coordinator for Alaska Natural Gas Transportation Projects.
Larry Persily will be speaking about federal gas export laws and providing updates on this project at the North American Gas Forum held in Washington DC September 28-30.
The North American Gas Forum once again will bring together senior decision makers from across the natural gas value chain, uniting industry, regulators and government and focus on ways the industry can collaborate to grow the regional and global natural gas and LNG markets, promote candid debate and exchange and advance the industry.
One important development – though specific to oil instead of natural gas – was the state’s oil tax regime adjustments that oil companies lobbied hard to get approved. The previous system championed by former Governor Sarah Palin was replaced at the beginning of the year with a new plan that stripped out a surcharge that increased along with oil prices. This price-sensitive component increased long-term financial planning uncertainty, the oil industry argued, while opponents of the tax regime change called it a Big Oil giveaway. The oil company compensation versus state tax revenue debate is likely to continue for some time.
Nevertheless, the companies developing North Slope oil resources – ExxonMobil, ConocoPhillips and BP – would also be some of the main investors in the Alaska LNG project – along with TransCanada and the State of Alaska – so longer-term oil tax stability removes an element of uncertainty, which is important when deciding whether to make the substantial capital investments required to build the LNG project.
“The oil policy changes are encouraging to the industry,” Persily said.
Another important development was state approval of “enabling legislation” that allows the State of Alaska to become an equity investor in the project.
“The legislation allows the state to take ownership of about 25 percent of the gas produced for the project in lieu of receiving payments for its royalty share and production taxes. The state would then sell its 25 percent of the gas and use the proceeds to pay its processing, pipeline and liquefaction expenses, depositing the balance in the state treasury. …The state would take an ownership stake in the LNG plant equal to its percentage of gas flowing down the line and would contract with TransCanada for the company to take the same percentage ownership on behalf of the state in the pipeline and North Slope gas treatment plant,” according to a statement.
“The state would be paying TransCanada to move its portion of the gas,” explained Persily.
Having TransCanada stand in for the state on the pipeline and North Slope treatment plant effectively saves the state $6 billion to $7 billion, which is roughly the same amount it would pay for its stake in the liquefaction plant, storage tanks and marine terminal. TransCanada would be allowed an at least 12% return on its equity investment – built into the tariff charged for moving the state’s gas – in return for taking on that portion of the project on the State of Alaska’s behalf.
“The pre-front-end engineering and design (Pre-FEED) phase is underway now and will cost about $400 – $500 million. The next stage would cost about $2 billion and take an additional 2 to 3 years, with a final investment decision not expected before 2019,” Persily told Breaking Energy. “But at any point the costs could change.”
Detailed information can be found on the Alaska Natural Gas Transportation Projects’ website.
The Asian LNG market into which much of the Alaskan project’s gas would be sold remains a major wildcard. Asian spot LNG prices over the summer plummeted from around $20 per million Btu to around $10/MMBtu, making the economics of piping, liquefying and shipping North Slope volumes – or any North American volumes for matter – questionable.
Asian spot LNG prices have strengthened a bit heading into winter, but such price uncertainty is likely unsettling for major North American LNG export project investors. “For example recent forward pricing for LNG has exhibited quite a steep contango. Spot Asian cargoes for August/September delivery have recently been changing hands around US$ 11/million Btu, with cargoes for November delivery pricing above US$ 13/million BTU. While the extent of this winter recovery is uncertain, the price slump into the summer has already shaken market perceptions of the global supply and demand balance,” according to Timera Energy Directors David Stokes and Olly Spinks.
Time and some initial investment will tell if the Alaska LNG project’s economics pan out as originally envisioned.
“If the companies are serious and the market behaves the way they hope and expect, and they can agree with the state, I think they would like to build it. But those are some pretty big ifs,” Persily said. “It will cost money to see where within the $45 – $65 billion range they are and whether it would still be economic to sell the gas to Asia,” he added.
Speakers addressing LNG-related topics at the North American Gas Forum will include:
Paula Gant, Deputy Assistant Secretary for Oil and Natural Gas, DOE
Bill Davis, Project Executive, Golden Pass Products
Octávio Simões, President, Sempra LNG
Anatol Feygin, Senior Vice President, Strategy & Corporate Development, Cheniere
Bill Cooper, President, CLNG
Peter Rano, Senior Vice President Global LNG Operations, CB&I
Larry Persily, Federal Coordinator, Alaska Natural Gas Transportation Projects
Breaking Energy is a North American Gas Forum media partner.
