Alaskan LNG hopes raised again, as bidding process closes
The proposal for a liquefaction plant in Alaska, either to the Lower 48 or Asia, has again been dusted off, although the prospects of real progress still appear distant.
On 30th November, the deadline passed for bids under the Alaska Gasline Inducement Act (AGIA), promoted by State Governor Sarah Palin, under which companies and organisations were invited to submit proposals for projects to ship Alaska North Slope natural gas. Among the bids was one from the Alaska Gasline Port Authority (AGPA), which submitted a proposal to build a natural gas pipeline from fields on North Slope for liquefaction and export from the port of Valdez.
AGPA – a joint project of the Fairbanks North Star Borough, the city of Valdez and the North Slope Borough – has already acquired senior environmental permits for its proposed LNG project, All-Alaska Gasline LNG, giving it a three-year time advantage over pipeline proposals, the group says.
As HLM went to press, BG Group would not confirm or deny rumours that it had also submitted a bid for a liquefaction plant, although David Keane, BG Group’s vice president for policy and corporate affairs in the region, said he thought LNG was the right move out of Alaska, and would “spur on further development”. Another source at the company said a team had been working on a proposal.
“BG actively supports Governor Palin and her plans with the AGIA process,” said Keane. “Alaska is a Pacific Basin supplier – or would be,” he told a recent conference, adding that Alaskan gas producers should not focus solely on US markets.
Increasing globalisation in the gas markets could eventually overturn the long-held assumption that the only feasible market for Alaskan gas is the US Midwest. However, BG Group remains a minor player in the Alaskan gas scene, where the big three – BP, ExxonMobil and ConocoPhillips – hold the majority of reserves and continue to favour a pipeline to the Lower 48. Gaining political support for a plan to export US gas to foreign markets would be a tough challenge, given the strength of domestic gas demand.
A Houston-based consultancy has been engaged by the state of Alaska to take another look at feasibility studies and the economics around a liquefaction project. “The state has pushed the plan to build a liquefaction plant and send cargoes to the US West Coast,” said a US consultant. But even to get the gas as far as the plant would require an 800 mile pipeline, so the economics remain hard to justify. And at the other end of the chain, opposition to West Coast terminals has stifled the market.
With estimated reserves of 35 trillion cubic feet (991 billion cubic metres), and more to be discovered, debates over how to best get North Slope gas to market have been going on for years. BP Alaska said this week it was not planning to submit a bid under the AGIA process, as it still believed the tax and royalty terms offered were insufficient. With cost estimates for a large gas pipeline to Alberta or the Lower 48 running at about $30 billion (EUR 20 billion), better incentives were needed, a spokesman said.
BP has not updated a review it carried out a few years ago on the idea of building a pipeline to an LNG export terminal at Valdez, but the trio of international oil companies (IOCs) has invested $100 million on studying how to go about building a pipeline. ConocoPhillips has submitted a proposal under the AGIA, for a 4 Bcf/day pipeline from the Alaska North Slope to markets in Canada and the US. ExxonMobil declined to confirm whether it would submit a bid.
In the Anchorage Daily News this week, Marty Rutherford, Alaska’s Deputy Natural Resources Commissioner and head of the state’s gas pipeline team, said companies that applied would be identified immediately after the 30th November deadline, but no other information would be released. The state team and financial, engineering and legal consultants would spend some months ranking the field, and state spending on the AGIA process could reach $13.5 million, she said.
Last year, AGPA offered to purchase gas from the producers, and legal experts for the state advised that the producers had a duty to develop the gas, and were obliged to accept an offer that provided a reasonable expectation of profit. But negotiations have not progressed.
Asked whether there was now increased momentum behind a liquefaction project for Alaska, PFC Energy consultant Nikos Tsafos said it could make sense economically to send more LNG from Alaska to Asia, “but it is politically difficult to justify exports from North America in such a tight market”. Conversely, he added, it is politically appealing to send LNG to the US West Coast, although it is not economically attractive.
AGPA has long argued that the “win-win” solution for Alaska is its LNG project. Its strategies for gas acquisition include purchase, use of the state’s royalty share, or use of gas from Point Thomson. Its project would take about four years to construct, and would include an 800-mile gas pipeline from Prudhoe Bay to Valdez. It would be built to accommodate an extension to Canada for the producers’ project, AGPA said, and the LNG would go to North American markets.
AGPA says it is negotiating with six west coast LNG receiving terminals, including Sempra Energy’s Costa Azul terminal, under construction in Baja, Mexico, and Kitimat LNG, British Colombia.
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