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July 2014

Vol. 19, No. 28 Week of July 13, 2014

Commercial agreement signed for AKLNG project; work under way

A formal commercial agreement has been signed for the Alaska liquefied natural gas project, Alaska Gov. Sean Parnell said July 2. Signatories were the Alaska Gasline Development Corp., BP, ExxonMobil, ConocoPhillips and TransCanada.

“Environmental and pipeline engineering fieldwork has officially begun,” Parnell said in a statement.

The commercial agreement means the Alaska LNG Project has fully entered the pre-front end engineering and design, or pre-FEED, phase, “a milestone no previous Alaska gasline project has achieved,” the statement said.

The producer parties will spend hundreds of millions of dollars on design and engineering for the project during pre-FEED, and will also begin work to secure an export license with the U.S. Department of Energy and continue permitting work with the Federal Energy Regulatory Commission.

In addition, the state, and each producing party, will begin to engage the LNG market during the pre-FEED stage.

Passage of SB 138

Passage of Senate Bill 138 in April - the enabling legislation for state equity participation - was a requirement for pre-FEED to begin.

Under provisions of SB 138 the state will take a 25 percent equity position in the project, based on taking both royalties and production tax on natural gas in kind.

Two documents, the heads of agreement - between all the producing parties, the state and TransCanada - and the memorandum of understanding between the state and TransCanada, were drawn up prior to the 2014 legislative session. SB 138 enabled the state to participate in the Alaska LNG project as proposed by those agreements.

The MOU provided for the termination of the state’s license with TransCanada under the Alaska Gasline Inducement Act and a transition to a commercial agreement. Parnell told a Fairbanks audience June 17 that the state had “terminated the license with TransCanada under AGIA” and completed a “traditional precedent agreement.”

That termination had been negotiated in the MOU, which along with the HOA was ratified with the passage of SB 138.

The cost estimate for the state during the pre-FEED phase is $43 million to $100 million, about 1 percent of the total investment. Pre-FEED has been estimated at 18 months.

Movement on to Phase 2, FEED, requires additional legislative approval, as well as approval by the other parties. The state’s cost of the FEED stage is estimated at $180 million to $450 million, some 2-3 percent of the total investment.

Phase 3 is the final investment decision, and will, once again, require legislative approval for state participation as well as approval by the other parties. FID marks the beginning of construction, estimated to take place from 2019 to 2023, with the state’s cost from $7 billion to $13 billion, 95 to 97 percent of investment costs.

- Kristen Nelson






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