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Senate Finance talks LNG with producers TransCanada, AGDC execs part of panel answering wide-ranging business questions about Alaska liquefied natural gas project Kristen Nelson Petroleum News
Senate Finance has the enabling legislation for state participation in the proposed Alaska LNG project, and on Feb. 25 and 26 the committee got a chance to question the producers, TransCanada and the Alaska Gasline Development Corp. about the project and the state’s participation.
Committee co-Chair Pete Kelly, R-Fairbanks, asked the companies — representing signatories on the heads of agreement — why the Alaska LNG project is a good business decision. In the Feb. 26 continuation of the meeting, Sen. Mike Dunleavy, R-Mat-Su, asked the parties what they liked — and didn’t like — about the arrangement.
ExxonMobil Bill McMahon, senior commercial advisor with ExxonMobil, said Exxon has been looking at commercializing its North Slope gas and when the governor invited producers to join with TransCanada to consider liquefied natural gas, ExxonMobil saw the merits. He said the producers, TransCanada and the state reached agreement on the HOA. If the enabling legislation, Senate Bill 138, is enacted, ExxonMobil is ready to move into pre-FEED, preliminary front-end engineering and design, which would take the project from concept and move it forward.
McMahon said what ExxonMobil really likes is the breadth of participation in the project — the three producers, TransCanada and AGDC. On the down side, he said the participants solved problems to get the HOA in place. He called it a constructive process and said he thought problem solving would be used to tackle other challenges. He said he didn’t see downsides to how the project was organized.
BP Dave Van Tuyl, regional manager with BP in Alaska, said executing the HOA was an important step for BP in getting Alaska’s gas to market. He noted that the parties in the HOA haven’t always been aligned and said following the shutdown of Denali, the BP-ConocoPhillips proposal to get gas to the Lower 48 via pipeline, BP didn’t stop pursuing natural gas and came to a decision internally that combining with other parties was the way forward.
Van Tuyl said alignment of all entities on a way forward is tremendously important, with agreement on the framework to move forward in the HOA. He said the price tag of potentially as high as $65 billion was something he didn’t like — it’s daunting, he said, and through the pre-FEED and FEED steps cost will be the primary focus.
ConocoPhillips Pat Flood, who supervises the North Slope natural gas development team for ConocoPhillips in Alaska, said key areas addressed in the HOA include the state’s decision to participate. While Denali didn’t succeed because of changes in the North American gas market, the Asian LNG market has remained strong. The LNG project, he said, builds on more than half a billion dollars worth of work done since 2000, and he called the alignment of the parties “absolutely historic.”
What ConocoPhillips likes most is the alignment which could create a historic new relationship between producers and the state. He said he didn’t like how much the project costs and the next step is to try to fix that to the extent possible, making it reliable, but doing it for as little as possible.
TransCanada Tony Palmer, vice president major projects development for TransCanada, said TransCanada thinks it is very significant that after so many years the companies remain convinced they can commercialize the gas. TransCanada feels the same way, he said.
Palmer said the producers in the project have the expertise in the Asian market while AGDC brings the focus on gas to Alaskans.
Alaska LNG will have to compete in the world market, he said, and with the parties involved in the Alaska LNG project, TransCanada is confident the project will succeed, he said.
Palmer said the alignment issues are the most positive thing about the project and the fact that the state, as sovereign, is a participant. He said while all parties wish the scale of the project was smaller, it’s what is dictated by moving 3 billion cubic feet a day off the North Slope.
AGDC Dan Fauske, president of AGDC, said AGDC has made good progress on its own project — a smaller in-state line — and believes that if there is the opportunity for a larger project, the state should do that.
He said he’s always believed in equity participation, the idea of skin in the game, and said he thinks the project is headed in the right direction.
Fauske said he likes the arrangement because everyone’s in the room discussing it and everyone’s brought their top people to the table. He said what he doesn’t like is that it’s easy for him to get sidetracked from AGDC’s mission of gas to Alaskans, but said the HOA group has been very congenial in understanding AGDC/s mission, which doesn’t necessarily line up with the huge Alaska LNG Project.
Some committee concerns Among issues raised by committee members, Sens. Donny Olson, D-Golovin, and Lyman Hoffman, D-Bethel, along with Dunleavy, were concerned that the project wouldn’t result in benefits to rural Alaska.
Hoffman said if the off-take points on the line weren’t accessible to rural residents, they would not benefit from the line directly. Dunleavy had a similar concern and Olson said without a definitive plan to bring gas to rural communities rural residents won’t benefit.
Fauske agreed it is a difficult issue, but told the committee that the cost of doing nothing exceeds the cost of the project and said once there is a pipeline for gas from the North Slope, reducing energy costs to rural Alaskans becomes easier. He mentioned the Donlin Creek mine project, and said if gas goes to Donlin, there would be an opportunity to get it to Bethel and other areas.
Hoffman asked how the project would fare if the state’s interest was zero, rather than the 20-25 percent that’s been proposed.
Van Tuyl said one of the “critical bedrock elements” for BP in the HOA is alignment of interests across the value chain for all parties, so state participation is “vitally important.”
McMahon referred to work done by Black & Veatch and enalytica which found value in state participation.
Van Tuyl said there was a concern that the AGDC subsidiary, established by SB 138 to hold the state’s interest, be established in an efficient manner. He said it was also important that the subsidiary be formed in a timely manner so pre-FEED can start ramping up. Fauske said there was some confusion on the AGDC subsidiary and said some language changes would help.
Sen. Anna Fairclough, R-Eagle River, asked if getting an export permit could hold up the project.
McMahon said the Department of Energy export license is important and said the project is working on components of that application and would expect to file it later this year.
The project expects to be able to get an export permit, McMahon said, adding that it would need to be in hand before the final investment decision is made and so LNG buyers would have the confidence to sign long-term contracts.
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