Update: Alaska’s legislation paves way for participation in LNG project

23 April 2014 04:10 Source:ICIS

The following story has been updated to include the section with the title BP agrees to North Slope assets sale:

Alaska has taken a further step towards securing equity in a proposed LNG export project, after the state’s legislature passed a bill outlining its participation.

The Alaskan legislature passed State Bill 138 late on 20 April, a proposal that was first backed by Governor Sean Parnell in order to develop a large-diameter Alaskan pipeline that would connect stranded North Slope gas reserves to an export facility.

The state has lobbied to advance the project because the proposal would allow for gas pipeline development along the state’s remote interior, where domestic demand is growing.

The bill, which requires a final sign-off from Parnell, now formalises Alaska as an equity partner in the project’s liquefaction and marine facilities, alongside the three North Slope gas producers – US ExxonMobil, ConocoPhillips and UK-based BP – and Canadian pipeline developer TransCanada.

The three North Slope producers and TransCanada have proposed a three-train, 15-18mtpa facility, to be tentatively located in the state’s south-central region.

The total project cost estimates are at between $45bn to $65bn, which would place the liquefaction proposal as one of the world’s most expensive.

Considering the costs, plans to build and develop an approximately 800km pipeline, as well as a greenfield export facility, have progressed at a leisurely pace. Any timeline for first LNG development is not considered until at least 2023.

According to the governor’s office, the bill now ensures that the project has moved to the pre front-end engineer and design (pre-FEED) stage, which is expected to last until December 2015. With a FEED pencilled in between 2016 and 2018, construction could begin as soon as 2019, depending on a final investment decision.

The combined project cost between the three major producers has been estimated at about $41.2bn, equalling 75% of the project costs, according to the state.

The state of Alaska has offered to take up to 25% equity in the project. Through its share, the state may have to make an outlay of $13.8bn in capital, although further legislative action is required in order to move to the FEED stage and sanction the project.

Alaska has the only existing LNG export plant in the US in operation - the 1.5mtpa Kenai facility owned and operated by ConocoPhillips. The facility was recently cleared to restart this spring.

Declining feedgas in the Cook Inlet where Kenai is located has triggered several mothball periods for the plant and only sporadic cooling periods where the plant can produce summer string volumes.

BP agrees to North Slope assets sale

BP has also announced an agreement to sell its interests in four North Slope oilfields to Houston-based energy company Hilcorp. The agreement includes BP’s interest in the Endicott and Northstar fields, as well as a 50% stake in the Liberty and Milne fields, and also includes the company’s interest in the associated oil and natural gas pipelines.

Financial details of the sale, which is expected to close at the end of 2014, were not publicly disclosed.

In shedding some of its North Slope assets, BP is now poised to concentrate on the development of oil and gas production at Prudhoe Bay and advancing the Alaska LNG project, the company said.

Recent energy tax reforms passed by the state of Alaska – as a way to sweeten the terms to develop the state’s LNG project – have spurred increased investment in Prudhoe Bay production by the major producers.

The assets that were part of the transaction to Hilcorp represent 19,700 barrels of oil equivalent/day of net production, or less than 15% of BP’s total North Slope net production. Ruth Liao

By Ruth Liao