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Legislators question AGDC on plan
House Resources, joined by some members of the House Finance Committee, heard an update from the Alaska Gasline Development Corp. Dec. 4 in Anchorage. The presentation, by AGDC President Keith Meyer and AGDC Senior Vice President Frank Richards, mirrored the presentation Meyer gave to the annual meeting of the Resource Development Council in mid-November.
Except here legislators could - and did - ask a lot of questions, particularly the Republican members of the committees, about issues including netback to producers on the North Slope, the process being used to move the project forward and the deal with China.
House Resources co-Chair Andy Josephson, D-Anchorage, provided some pushback to questions and took the opportunity to commend AGDC for its work, saying he sees some real success and noting that the administration cares a lot about the project and has worked very hard on it.
Meyer said AGDC is continuing to market the Alaska LNG process and was in the process of signing a letter of intent with Tokyo Gas Co. Ltd. On Dec. 5 AGDC issues a press release on the signing of that letter of intent.
“Alaska is a trusted source of LNG,” said Michiaki Hirose, president of Tokyo Gas. For more than 40 years LNG shipments went to Japan from the Nikiski plant.
Meyer said in the press release that the LOI “signifies the continuation of this decades-long relationship between Alaska and Tokyo Gas Co., Ltd., and helps round out the sales volumes from the Alaska LNG Project.”
The China deal In discussing the China deal with legislators, Meyer noted that it envisions that 75 percent capacity in the Alaska LNG project would be taken by China, which would pay for that capacity with U.S. trade debt. AGDC would have the remaining 25 percent capacity for in-state use and for sale into regional Asian markets, with a focus on Korea and Japan.
Meyer told legislators AGDC believed that government-to-government marketing of capacity on the system would be attractive to China, Korea and Japan, especially China and Korea, which have large government-owned utilities, and believed that countries would be interested in portions of the capacity.
What it found, however, was that China was interested in the entire 75 percent.
The FEED issue On the process side, Rep. Lance Pruitt, an Anchorage Republican, asked what happened to FEED, front-end engineering and design, a step in the stage-gate process that has been prominent in discussions of planning for an Alaska LNG project. The pre-FEED stage was completed when the state was partnering with the North Slope producers.
Richards said the class 3 work identified in AGDC’s forecasted spend estimate, work for which $12.28 million is budgeted from January through June of next year, is to prepare for a lump sum cost estimate which will be used in the final investment decision.
Meyer said the stage-gate process is how the majors do projects, and said they will argue you can get it cheaper if you do FEED, followed by what Meyer described as having the contractors beat themselves up to bid what you design.
Lower 48 LNG and pipeline projects don’t do it that way, he said, but instead do enough work to ask a contractor for a lump sum turnkey. FEED is then done by the contractor who takes the lump sum contract.
Pruitt said he doubted an 800-mile pipeline could be done as a turnkey project. Meyer acknowledged that the pipeline is where there is some risk and said AGDC may have to do some FEED to get a contractor to bid.
But for the LNG facilities - the gas processing plant and the LNG facility at Nikiski - you get a contractor competent to do the work and they do FEED as part of the lump sum turnkey; that is why, Meyer said, a number of Gulf Coast projects are already in operation.
Netback There were also a number of questions around the concept of netback - pricing based on competing in Asia with a target of landing LNG there at $8 per million Btu. With shipping at 80 cents per million Btu, that means LNG at Nikiski has to be at $7.20, and subtracting operating and maintenance estimated at $1.45 per million Btu, debt service of $3.60 and payments to equity owners at $1.15 leaves a netback of $1 on the North Slope.
Meyer said netback is common, that it is only in the Lower 48 where you start with price. Other projects are based on netback because they are selling into a competitive market and are left with what’s left over. He said producers deal with netback all over the world and that it is standard for stranded gas.
Meyer said AGDC has had conversations with the producers and they have seen the presentation. Everyone wants more, he said of how the $8 would be divided, but no one has said it isn’t acceptable, none of the producers have said this doesn’t work.
But, he said, AGDC will have those discussions and finalize those agreements.
- KRISTEN NELSON
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