August 2016, Vol. 71 No. 8
Newsline
Governor Pushes For Bigger Role In Alaska LNG Megaproject
Big oil producers are expressing serious doubts about moving forward with a multibillion-dollar liquefied natural gas export project in Alaska at a time when world energy markets are flooded with fuel and natural gas prices are half of what they were two years ago.
But that isn’t stopping Alaska Gov. Bill Walker (I), who insists the state can commercialize the 34 trillion cubic feet of natural gas available on the North Slope even if one or more of its oil industry partners decides not to move forward with the proposed project.
Walker and Keith Meyer, the new head of the state’s independent Alaska Gasline Development Corp., are promoting a plan to change the project’s financing in hopes of getting the facility online by the mid-2020s.
At that point, Meyer predicts, world demand for gas is likely to escalate.
Currently, the state is part of a public-private coalition with Exxon Mobil, BP Alaska and ConocoPhillips to build North America’s largest gas export venture, Alaska LNG. The Exxon Mobil-managed project would consist of a gas treatment plant on the North Slope, an 800-mile pipeline with off-take points for state residents, and a liquefaction plant and export terminal complex on Alaska’s southern coast.
Under the alliance’s 2014 joint operating agreement, each partner would own about 25 percent of the gas running through the pipeline and would pay 25 percent of the construction costs, estimated at just over $45 billion.
The Alaska LNG team has nearly completed the preliminary engineering and design studies on the megaproject and is submitting a series of draft resource reports to the Federal Energy Regulatory Commission. Beyond that work, the project’s future is uncertain due to the collapse of world oil and gas prices.
In an effort to maintain the project’s momentum, the Walker administration is proposing a new plan for bankrolling construction by raising funds from long-term, third-party investors. Meyer argues that this arrangement would give the state greater control over the project, while lowering its fiscal risk. Under this approach, the oil companies would be gas shippers instead of equity owners in building the project.
Walker faces an uphill battle in selling his new financing and management model to the oil producers and the Republican-led legislature. And the original alliance is approaching critical decisions that will determine the fate of the project between now and the end of the year.
Representatives of the three oil companies have told state legislators they’re open to hearing more about Walker’s proposal. BP and Exxon Mobil officials say they’re willing to consider moving forward with the next stage of technical studies under the existing Alaska LNG business plan, which are expected to cost up to $2 billion. But ConocoPhillips officials say they aren’t ready to commit to that expensive research “in the current price environment.”
State legislators are dubious about Walker’s proposal to take control of the venture at a time when Alaska’s industry partners are worried about its economic feasibility.
“You’ve seen a fundamental change in market conditions,” said Sen. Peter Micciche (R). “And if the people that have the most experience on the planet are concerned about the viability of this project, I think we should share in that concern.”
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