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Owners ask for more time to export LNG ConocoPhillips and Marathon make case to DOE for more time to ship approved volumes, point to broad local support for extension Eric Lidji For Petroleum News
The owners of the liquefied natural gas facility in Nikiski have formally asked the U.S. Department of Energy for more time to ship Alaska LNG to markets overseas.
ConocoPhillips and Marathon submitted an application on June 8 for a two-year extension of the export license, asking the federal government to rule within 90 days.
Unusually, the companies are not asking for permission to ship more natural gas overseas, but rather want more time to ship volumes approved for export in 2008.
That authorization let the companies ship 99 trillion British thermal units of natural gas to international markets starting on April 1, 2009. As of May 24, the companies had shipped only 35 trillion Btu of that allotment, and the companies estimate they will have shipped only 55 trillion Btu by March 31, 2011, when the current license expires. The extension would give the companies until March 31, 2013, to ship remaining volumes.
The companies blamed the slow pace on their decision to export LNG from Alaska on a single tanker, rather than two, “in light of economic and efficiency considerations.”
They also said that several conditions — including the global LNG market, the ability to find economic shipping options, and “strategic decisions regarding the future role of the Kenai LNG Facility” — could crimp future shipments even with a license extension.
The facility is the only LNG exporting operation in the country and makes deliveries to Tokyo Electric Power Co. and Tokyo Gas Corp. under contracts that expire March 2011.
Owners: local needs being met The primary stumbling block facing any extension of the export license is whether local demand for natural gas can be met while LNG is being shipped to other countries.
Broadly, the owners don’t see a conflict.
“Rather than viewing the export and local markets as mutually exclusive, in this instance they should instead be seen as symbiotic,” the companies wrote in their application.
Proponents view the facility as a regional stabilizer that stores excess production in the summer that can be called upon when demands peaks during winter cold snaps.
So far this year, exports to Japan were lower in January and February than in March and April, as more gas volumes stayed in Alaska during the coldest months of the year.
The owners believe an extension can serve as a bridge until the region gets more storage.
ConocoPhillips and Marathon pointed to several recent studies showing adequate near-term supplies in the Cook Inlet basin. They also pointed to short-term supply contracts Marathon recently entered into with Enstar Natural Gas and Chugach Electric Association that provide natural gas to the two largest users in the state during the time period of the extension. ConocoPhillips and Marathon said their decision to export, should the license be extended, would depend on honoring local contracts first.
Those contracts don’t entirely cover local demand, though. The Enstar contract leaves a 2 billion cubic foot shortfall in 2011 and 2012. Provisions in both contracts also allow Marathon to curtail planned local deliveries if the Department of Energy doesn’t extend the export license and Marathon is forced to shut-in wells as a result, causing a drop in deliverability.
Licenses getting shorter LNG exports from Alaska share a trajectory with the local market.
When exports began in 1967, the Southcentral region faced a surplus of natural gas supplies discovered by accident in the search for oil resources in the Cook Inlet basin.
The producers at the time signed long-term contracts with area utilities, some lasting decades. Put at ease about local needs, the federal government approved long-term export licenses, including one from 1967 to 1984 and another from 1988 to 2004.
Over the last decade, though, declining production fueled debates over the price of local gas supplies, leading to shorter contracts between producers and local utilities. In turn, the Department of Energy began approving shorter-term licenses for LNG exports, including one from 2004 to 2009 and the current license from 2009 to 2011.
The current license drew some opposition. The State of Alaska originally questioned it, but eventually gave its approval in return for drilling commitments and other concessions. Chugach Electric Association, at the time still searching for a supply contract to meet its own shortfalls, tried unsuccessfully to have the approval overturned.
Now, though, the request for the extension of the license is being received favorably. The Alaska Department of Natural Resources supports the request. The Alaska Senate and House of Representatives both unanimously approved resolutions in favor of keeping the export facility in operation. Fresh off two consecutive contract approvals that satisfy its own needs through April 2013, Chugach Electric also backed the request for more time.
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