LNG News February 19, 2013

In the last edition of the LNG news, I reported that on September 14, 2012, the Alaska Gasline Port Authority submitted a nomination of gas into ExxonMobil/TransCanada’s Solicitation of Interest open season that was required under AGIA. The AGPA nomination on behalf of specific Asian buyers plus the estimated instate demand was for over 3 billion cubic feet per day (bcf/d). Shortly after that LNG News was published, we learned from an Anchorage Daily News report that there was another nomination in that same AGIA open season from a consortium of Japanese buyers. Their nomination was for 2.7 bcf/d. The combined total of the two nominations was over 5.75 bcf/d. This is over 200% of the volume needed for a large line to tidewater for export to Asian markets to be economically viable. However, there has been no response to the gas nominations which were submitted last fall. What exactly is Alaska getting from the $500 million AGIA licensee that fails to acknowledge the abundant market demand and ignores the letters of interest of would be buyers?

Instead of moving full speed ahead on the large volume line that would provide maximum benefits to all Alaskans in terms of reduced energy and billions of dollars in state revenue to help fund education, public safety and infrastructure development, Alaska remains deep in a debate about an uneconomic line that takes the legislature’s eye off the ball regarding a large volume line to benefit all Alaskans. Some believe building a large diameter, small volume line along the Parks Hwy with no LNG export piece is the answer (House Bill 4). A primary concern with this option, sponsored by House Speaker Mike Chenault and Representative Mike Hawker, is similar to concerns with last year’s HB 9 which failed to receive legislative support.

While the concept of the state taking control of the pipeline process is a good one, HB 4 appropriates up to $400 million for the permitting process for a low volume gasline (not to exceed 500 million cubic feet), that is thin walled so the valuable liquids for value added jobs will never be able to come down that line. It is estimated to cost up to $10 billion and take up to ten years to build. This is not the “bullet line” as originally considered several years ago; this is a mega project that may well be the largest project in U.S. history. The immediate need to reduce the high cost of energy in Fairbanks and the risk of running out of natural gas in Cook Inlet cannot wait ten years for the HB 4 option. There are several much cheaper and quicker options that should be seriously considered.

In 2006, the Alaska Natural Gas Development Authority (ANGDA), the organization created by a vote of 138,000 Alaskans in 2002, performed a study on importing LNG to the existing LNG export terminal at Nikiski. The cost estimate then for conversion of that terminal from an export terminal to an LNG receiving terminal was $62 million and it could be accomplished relatively quickly. Another option previously advanced was a small diameter gas line from Big Lake to Fairbanks with a cost estimate of $200 million that would take approximately one year to build. A third option is the LNG trucking option either from the North Slope south or Cook Inlet north. This option is in the $200 million range and can be completed in two years. The main difference between these options is that HB4 will expend up to $400 million just to get to an open season before a decision to build anything could be made while each of the other options could solve the immediate problem with a fraction of the cost and result in gas to many Alaska consumers at a much lower price than the HB4 option. Meanwhile, there is a rapid, short term solution while we focus our development efforts on the large volume line with its multitude of generational benefits for Alaskans.

I recently submitted an opinion piece that ran in both Fairbanks and Anchorage newspapers in anticipation of the long awaited February 15, 2013 announcement from the North Slope leaseholders detailing development plans for the large AGIA line to tidewater. My article set forth the criteria that must be met in order for Alaskans to know that a real gas line project is underway as opposed to another delay tactic or study. Read here the letter read by Governor Parnell to the Fairbanks Economic Development Council luncheon attendees last Friday that constituted the long awaited announcement. You be the judge to see if the letter meets the test of a real project. It should be a wakeup call to Alaskans that we will only have a pipeline that benefits all Alaskans and matches the global opportunity within our grasp if Alaska steps up and takes control of the gasline project. This needs to happen before the Asian markets’ demands have been filled by other LNG projects around the world currently being developed by ExxonMobil, ConocoPhillips and BP.

Bill Walker
General Counsel/Project Manager
Alaska Gasline Port Authority

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