September 17, 1999 --- Vol. 5, No. 44September 1999

Gas sponsor group sizes down North Slope LNG project

Plans for the Alaska North Slope LNG project have taken a dramatic turn, down from 14 million tons a year to 7 million tons a year with a capital cost, excluding shipping, of $5-$6 billion.

Steve Alleman of Phillips Petroleum Co., commercial manager of the ARCO Alaska Inc.-led North Slope liquefied natural gas project, told the Alaska Support Industry Alliance Sept. 17 that the focus remains on defining a commercially viable project. Alleman said the real driver is the market.

“This project must be economical and yet it must be small enough to get its foot into the door in this intensively competitive international LNG marketplace.”

The goal is to be small enough to be competitive in the market, but flexible enough to be able to expand the project in response to the marketplace, he said.

The sponsor group board approved the new project description in early September.

“The Alaska North Slope LNG project is now targeting a much smaller market-entry project which we are projecting will cost about $5-$6 billion before shipping with an initial LNG volume of 7 million tons per annum that can be expanded if market conditions warrant,” Alleman said.

The 7 million ton project is half the size of the 14.7 million ton project studied earlier, and “puts this project right in line with other green field projects across the world,” Alleman said.

Smaller project reduces risk

The smaller project “significantly reduces the market and the capital risk” of the larger project previously studied, he said. Other green field projects have recognized, Alleman said, that 10-15 ton projects are “just too large to likely gain initial market entry.” The pipeline would probably still be 28-30 inches in diameter, but only one LNG train would be required and the conditioning plant on the North Slope would also be smaller, he said.

The plan is for a conditioning plant on the North Slope and an 800-mile pipeline to an LNG plant at tidewater. Two ice-free port locations are still being considered, Alleman said: Andersen Bay at Valdez and Nikiski. Substantial additional permitting and refinement is needed for either route before the project is ready to fund, he said, and the Nikiski route could add 18 to 24 months to the project. Alleman said he expected a routing decision soon.

He also said that the sponsor group has opened a market liaison office in Japan in Marubeni Corp.’s Tokyo complex. The group plans to work with the Alaska Legislature in the 2000 session on a regulatory structure for the project and make application under the Alaska Stranded Gas Act with the Department of Revenue by June — but possibly as early as December.

The most aggressive startup date is 2007-2010, with work starting in 2003 for a 2007 date.

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