|
BG: LNG to West Coast uneconomic Company worked on application, didn’t submit under AGIA, although continues to praise it as means of ensuring explorer access; phase 1 would have been liquefied natural gas to Far East market Kristen Nelson Petroleum News
BG Group, an international exploration and production company with significant liquefied natural gas interests, has interests in Alaska North Slope state oil and gas acreage and is investing, with operator Anadarko Petroleum, in wells being drilled this winter for both oil and gas targets.
The company testified last year when the Alaska Legislature was discussing the governor’s Alaska Gasline Inducement Act, and continues to say it favors AGIA as a means of ensuring that explorers will have access to capacity in a gas pipeline from the North Slope to market.
BG did not submit an AGIA application but told Gov. Sarah Palin in a Nov. 29 letter that the company had “spent considerable time and resources developing a potential project” and while it remained interested in an Alaska Natural Gas project, it wouldn’t be applying under AGIA to be the state’s licensee. The company said that “given the number of moving parts around all aspects of the project, there was still too much economic uncertainty for us at this stage.”
BG said it believes “LNG should and will be part of the solution for the future development of Alaska’s natural gas resources … as either an anchor project or as part of a larger ‘highway’ project.”
2-phase project would have begun with LNG export to Far East But what project was the company looking at in its application?
In a presentation to the Alaska Senate Resources Committee Feb. 2, BG Group’s David Keane, the company’s vice president of government affairs, said BG “looked at liquefied natural gas exports as the enabler of a larger highway project.”
He said the company’s project assumed 2.7 billion cubic feet of initial gas supply per day and also assumed that 500 million of that would be consumed in the Alaska market, with 2.2 bcf a day going to an LNG facility.
BG, he said, imported approximately 55 percent of the LNG entering the United States in 2007 and supplies about 30 percent of the LNG going into Asia Pacific markets.
There were two phases to the project the company worked on, with the first phase an 800-mile pipeline taking natural gas to Valdez “and a liquefied natural gas export plant followed by phase two of the project that included a pipeline to be constructed at a later date from Delta Junction to the Canadian border.”
The best market fits for the LNG, he said, “are the ones in the Pacific basin, specifically the Asia Pacific markets.”
Those markets “are the ones at least initially that could support the high cost of infrastructure for the project and maximize producer netback along with state revenue.”
Project estimate $13.5 billion Keane said BG worked with a pipeline partner and an experienced engineering, procurement and construction contractor on a cost estimate, which was about $13.5 billion in 2007 U.S. dollars for the pipeline and $22 billion total for the pipeline, three-train LNG facility and development costs.
The project was “a 100 percent all-Alaska solution” which kept the door open for a highway line through Canada, he said, and also addressed BG’s concern “that there is an insufficient amount of proven reserves to support the development of a larger highway project.”
The 2.7 bcf already approved by the Alaska Oil and Gas Conservation Commission “would be sufficient to finance and develop the LNG project,” Keane said. Once infrastructure is in place, exploration “would lead to new discoveries, which ultimately means you could support both an LNG export project as well as a mega-pipeline going to the Lower 48 states.”
Application likely nonconforming Keane said that if BG had submitted an AGIA application it would probably have been found nonconforming “because there were certain conditions precedent that we didn’t have in our bid” related to securing additional consortium members and then having to go back later to get approval from BG Group’s board.
The loss of the pipeline partner means the company would have to find another pipeline partner. Keane said BG is an exploration and production company and an LNG company, and needed a pipeline partner to manage the line while BG managed the LNG facility.
Because BG had lost its pipeline partner it couldn’t submit an application approved by the BG Group board and would have had to go back to the board — after submitting the application — for board approval.
They also lacked an order from the Federal Energy Regulatory Commission “confirming the jurisdictional assumptions underlying the bid, which was that the pipeline in phase one would in fact be federally regulated.”
In response to a question from Chair Charlie Huggins, R-Wasilla, about regulatory issues that should be looked at, Keane said the concern BG had with the LNG facility was it didn’t see how FERC could regulate the pipeline, although clearly the federal agency would regulate the LNG plant.
Having the Regulatory Commission of Alaska regulate the pipeline raised the issue of “the fox guarding the henhouse in terms of cost and wellhead netback,” Keane said. “… The pipeline operator would want to make sure that they’re recovering their cost with a fair return; and the motivation of the state may not be the same: It may be to increase the wellhead price.”
In the end, a number of risk factors led to the decision not to submit a bid under AGIA, Keane said: “lack of BG-owned natural gas reserves in Alaska; no pipeline partner; project viability was highly sensitive to capital costs, the rate of capital cost escalation and timing of the schedule; political and reputational risk; schedule delays that might threaten market opportunities; and regulatory uncertainty for … LNG export.”
Sen. Tom Wagoner, R-Kenai, asked if the Department of Energy would allow Alaska North Slope gas to be exported.
Keane said he thought “there are some significant political risks in exporting America’s gas outside of the U.S.” But, he noted, “even on the highway project, the natural gas that comes out of Alaska will ultimately go into a foreign country and it may or may not ultimately go to the Lower 48.”
Huggins asked about taking LNG into the Lower 48 through the Baja LNG facility and Keane said “we think that there is some capacity coming into that market” but going into Baja with LNG from Alaska would be “taking some of the highest priced LNG in the world into a market that has more than an adequate amount of gas supply currently; so we didn’t think the netback really made a lot of economic sense for us.”
| 