August 07, 2000 --- Vol. 6, No. 35August 2000

Sponsor Group commits to Stage 2 LNG effort

The Alaska North Slope LNG Project sponsors said Aug. 7 that they have agreed to continue efforts to develop an economically viable liquefied natural gas export project in Alaska. The companies said this follows the successful completion of Stage 1 studies, which began in late 1998.

Stage 2 is expected to continue for 12-15 months and will have a commercial focus. Further options, including sharing costs with other gas projects, risk mitigation and finance, will be pursued.

Phillips Alaska Inc, BP Exploration (Alaska) Inc., Foothills Pipe Line Ltd. and Marubeni Corp. will continue as project sponsors. The sponsor group said its primary focus will continue to be LNG with a gas pipeline route and LNG plant site configuration for either Anderson Bay or Nikiski. During Stage 1, project sponsors identified a 7 million-tons-per-year project as the most feasible option. The estimated capital cost of this project is about $7 billion, including shipping.

“We feel good about the current technical design and cost estimate of our project,” said John Ellwood, vice president of engineering and operations for Foothills. “By cutting the project size by about half and by designing in capital cost deferrals during the Stage 1 effort, we think we have a project that is small enough to gain a toehold in the East Asian market place and yet large enough to make economic sense. Such a project would also be expandable.”

Stage 2 work will focus on improving LNG project competitiveness. “Further reductions in cost and risk, differential to our competitors, are still needed to make an Alaskan project economically viable,” said Kevin Meyers, president of Phillips Alaska Inc. “We believe the opportunities for those improvements lie in commercial areas, such as marketing, financing, government fiscal and regulatory policy, and possibly synergies with other gas commercialization options such as pipeline gas to the Lower 48 or gas-to-liquids.”

“Stage 1 reinforced our belief that an LNG project serving East Asia will be market-driven. So, the objective of the sponsor group is to pace the project to be ready when the market is ready. With the pursuit of our re-designed, cost-deferred, 7 million-ton project we improve our potential competitive position in the LNG marketplace,” said Hajime Kubo, senior officer, energy division, Marubeni.

The Stage 2 effort will continue to be lead by Phillips with work to be conducted by staff from sponsor companies and by contractors. The project will continue to be located at the Phillips office complex in Anchorage.

“We have a strong sponsor group that has the ability to develop a project of this magnitude when it becomes economically competitive,” said Ken Konrad, business unit leader, Alaska gas, BP Exploration (Alaska) Inc.

ANS term price down 7 percent

BP said Aug. 7 that its August Alaska North Slope crude oil term price is $27.63 a barrel, down 6.59 percent ($1.95 a barrel) from the July term price of $29.58 a barrel, which was the high so far this year.

The lowest the term price as been this year was $23.96 a barrel in May. The year-to-date average term price is $26.79 a barrel, up 96 percent from the comparable 1999 year-to-date average of $13.67 a barrel.

BP is the only ANS producer to post a term price.

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