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January 2014

Vol. 19, No. 4 Week of January 26, 2014

LNG project works from Thomson to inlet

ExxonMobil Alaska LNG project manager tells Alliance ‘project management at this early stage is all about managing uncertainty’

Kristen Nelson

Petroleum News

The “heads of agreement” announced by Alaska Gov. Sean Parnell Jan. 10 at the Alaska Support Industry Alliance’s Meet Alaska conference may not be the silver bullet the Alaska LNG Project needs, but it’s “pretty close to it,” Steve Butt of ExxonMobil, senior project manager for the project, told the conference later that same day (see story on governor’s announcement in Jan. 19 issue).

“The one thing that we have today that we’ve never had before is everybody working together,” Butt said.

The Alaska LNG Project consortium includes BP, ConocoPhillips, ExxonMobil and TransCanada.

Butt said he thinks that having the state in the project “sets the stage for the success of this project.”

The state’s participation is subject to legislative approval of the heads of agreement the governor announced, and the memorandum of understanding between the state and TransCanada, transitioning from the license TransCanada holds under the Alaska Gasline Inducement Act into a commercial arrangement.

Significance of Point Thomson

Butt said his Alliance talk was essentially an update from the presentation he gave at the Resource Development Council’s annual conference in November (see story in Dec. 8 issue).

He highlighted work ExxonMobil has under way at Point Thomson, which is scheduled to begin life producing oil. But the pad design at Point Thomson will accommodate facilities needed later for natural gas production, he said.

The work to put in liquids production facilities at Point Thomson is “a huge accomplishment,” Butt said, “but it’s only the first step — because the real value of Point Thomson is the gas.”

The 8 trillion cubic feet of natural gas at Point Thomson is important to the Alaska LNG Project because “it provides economies of scale,” he said. “LNG is all about cost,” he said, telling the audience that purchasers don’t care where they get LNG — they just don’t want to pay anymore than they have to.

“And the way we drive our cost down is through economy of scale.”

Having natural gas from Point Thomson as well as Prudhoe Bay is important because once the infrastructure is built, putting more gas through it makes the project more efficient, Butt said. “And if I’m efficient, then I win,” he said, because in a commodity business, “low cost wins.”

The Cook Inlet end

At the other end of the project, in Cook Inlet, there are a lot of questions remaining, Butt said.

“We’re not sure where or if we need to cross the Susitna; we’re not sure where we want to cross the Cook Inlet.”

He said it’s important to get those things right to put the pipe in the right place “to provide gas to Alaskans,” but also to drive project costs down. The range has been put at $45 billion to $65 billion, and Butt said it’s important to get the cost to the low end to keep the project competitive.

Laying pipe across Cook Inlet isn’t that difficult, “we lay pipes across a lot of lakes ... and rivers all over the world.”

“It’s how you enter the water and how you exit the water that’s really a challenge,” he said.

Onshore the project is looking at a site by the ConocoPhillips’ plant in Nikiski. Butt said the new liquefaction facility will be 15 to 17 times as large as the existing LNG plant.

That site was selected because it’s favorable for construction, and also favorable from a marine perspective.

The project is also “continuing to look at the plant itself: what’s the right technology” to chill the gas.

“It’s very simple to make gas smaller when you make it cold,” Butt said, referring to the liquefaction process, but, he said, “it is very complex to do that with three and a half billion cubic feet of gas a day coming off the North Slope.”

The regulatory framework underpins project work, he said, adding that “project management at this early stage is all about managing uncertainty. If you put your buyer’s hat on and you think, ‘I’m risking my economy for 30 years and putting my children’s and my grandchildren’s standard of living in your hands,’ we’ve got to do it right.”

The regulatory framework is important in making the project work, Butt said.

The project has already spent some $175 million gathering data between Prudhoe and Livengood, and moving into the 2014 field season, “it’s all about trying to figure out the southern route.”

With the Alaska Gasline Development Corp. working with the Alaska LNG Project, “we’ll be able to look at opportunities to maybe collaborate there; it opens a lot of doors for us.”

A strong fiscal environment is important, he said, and the project needs “the Legislature to take a hard look at this” in this year’s session.






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