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Unconditional approval for LNG plant? Conoco, Marathon say new contracts should alleviate Alaska supply concerns through 2013, keep third party access open By Eric Lidji For Petroleum News
The companies that own the liquefied natural gas terminal on Alaska’s Kenai Peninsula want the federal government to extend their export license by two years, without any conditions on that extension.
In an Aug. 17 letter to the U.S. Department of Energy, ConocoPhillips and Marathon challenged those who are concerned about continuing exports at a time of tight supplies in Southcentral Alaska by saying recent contracts will ensure local needs get met during the extension period.
The current export license, approved by the Department of Energy, or DOE, in 2008 allows ConocoPhillips and Marathon to ship around 99 trillion British thermal units of LNG to Asia by April 1, 2011. Because of cutbacks in cargo tankers, though, the companies believe they will end up having shipped only about half that allotment by the deadline, and asked DOE for an additional two years, until March 31, 2013, to ship the remaining amount.
DOE previously decided that those volumes were in excess of the needs of the Alaska marketplace, a determination based on remaining reserves. The request from the two companies, though, comes amid growing concerns about the Cook Inlet basin’s ability to meet local needs, especially when regional demand peaks on cold winter days.
A group of Democratic lawmakers, several citizens and Gov. Sean Parnell, who filed late comments, asked DOE to guarantee local needs are met before exports continue.
ConocoPhillips and Marathon noted that despite those comments, their application remains “formally uncontested,” meaning no one intervened or filed a legal protest.
Contracts meet local needs The companies said three recent gas supply contracts should alleviate concerns about local needs during the extension period. Earlier this year, Marathon got approval for separate contracts with Chugach Electric Association and Enstar Natural Gas. (See related Enstar story on page 3 of this issue.)
Those utilities are the two largest users of natural gas in Alaska. The contracts helped Chugach meet its supply needs through 2014, but still left Enstar with a 2 billion cubic foot shortfall in 2011 and 2012, about 3 percent of its expected total need in those years.
Enstar and ConocoPhillips recently signed a contract requiring the producer to divert natural gas from the LNG plant into the local grid during peak demand, as long as it didn’t cause “material operational difficulties or technical harm to the facility.”
That contract, awaiting approval from the Regulatory Commission of Alaska, would create another line of defense against supply shortages on the coldest days of the year, but would still leave Enstar about 3 percent shy of estimated demand in 2011 and 2012.
Chugach and Enstar have both expressed support for the extension, primarily because the terminal moderates seasonal swings in demand by acting as a de facto storage facility.
Addressing a concern of the Parnell Administration, ConocoPhillips and Marathon said that over the past year they have purchased gas from other producers in the region for export and plan to continue doing so if the license is extended. The Palin Administration also made third party access to the LNG facility a condition for state support of exports.
ConocoPhillips and Marathon have asked for DOE to make a ruling by early September.
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