Resources Energy Inc., a Japanese company pursuing the possibility of exporting liquefied natural gas from Alaska’s Cook Inlet to Japan, is anticipating making a decision around the turn of the year on whether to proceed to the front-end engineering and design phase of the LNG project, company officials told the Alaska Oil and Gas Congress on Sept. 21. A final investment decision could follow by June 2017, said Brian Murkowski, REI vice president of regulatory and government affairs.
REI proposes to build a 1 million ton-per-year LNG plant near the existing port at Point MacKenzie, across Knik Arm from Anchorage, to process about 160 million cubic feet per day of Cook Inlet natural gas. The primary objective would be to export LNG to Japan, although the company has said that gas would only be exported if local in-state gas needs can be met.
“The goal is to bring first gas to Japan by 2020, maybe 2021,” Murkowski said. “We’re fairly far along. We’ve been working on this project for about four years.”
As distinct from the much larger AKLNG project, the project designed to export Alaska gas from the North Slope, REI’s concept involves the export of gas from gas fields in the Cook Inlet basin.
The gas supply
Murkowski said that his company has approached several Cook Inlet gas producers at various times over the last couple of years to try to establish a gas supply. And although the estimated capital cost of REI’s project, at about $1 billion, is by no means insignificant, the cost of the gas would dominate the internal rate of return on the project over the project’s 20- to 25-year life.
REI is trying to form some type of relationship with the producers - an equity position, some form of joint venture - to reduce the gas cost, Murkowski said.
Eiji Maezawa, REI executive vice president and chief operating officer, said that the Japanese LNG market is currently in a state of flux. Spot market prices have been rising from $4.30 per thousand cubic feet of gas in May, while the terms buyers seek for LNG supplies are changing towards a mix of spot purchases and long-term contracts, with diversified pricing. At the same time, moves to deregulate the Japanese energy and city gas markets will create more competition in the marketplace, he said.
Capital cost
However, the capital cost of the project is very important. With an existing gas pipeline infrastructure around the Cook Inlet basin, the bulk of the cost will be tied up in the construction of a liquefaction plant and an associated marine facility for loading the LNG onto vessels for shipment to Japan. It will be particularly interesting to determine where cost savings can be made, Murkowski said.
REI has worked with a number of companies and experts to develop cost estimates for its project, he said.
Planned arrangements
REI has already selected the type of liquefaction technology to use at the planned Point MacKenzie facility and has an agreement with Teekay Corp. to use the two ice-class LNG carriers that have been serving the existing LNG facility, currently operated by ConocoPhillips, at Nikiski on the Kenai Peninsula, Murkowski said. The leases on the vessels will be available for year-round operation from REI’s planned facility, starting in 2021, he said.
However, one issue yet to be resolved is whether it will be possible to use the existing dock at Port MacKenzie as a multi-use dock, including facilities for the loading of the LNG carriers as well as for other types of cargo - there is no precedent for this type of multi-use arrangement involving LNG, Murkowski said.
Murkowski said that, even without further gas exploration in the Cook Inlet basin, there is adequate known gas in the basin to meet both REI’s needs and the needs of Alaska’s gas and power utilities. Nor is the REI project in competition with the AKLNG project, given that the two projects are targeting different types of gas buyers and that the REI project is much smaller than the North Slope effort, he said.
Marketing opportunities
Maezawa said that there are marketing opportunities for LNG in Japan looming from around 2020 and 2021, but that the uncertain future scale of the Japanese nuclear power sector presents the biggest uncertainty in the future scale of the Japanese LNG market. Some nuclear plants have been restarting following a complete shutdown following a major earthquake in 2011. That shutdown has been the primary driving force behind Japan’s interest in the use of LNG as an energy source.
The Japanese government is trying to establish an LNG trading hub in the Tokyo area, potentially starting around 2020 to 2025 and serving markets in Japan, Korea and Taiwan, Maezawa said.
The appeal of having Alaska as a source of LNG is the relatively short shipping distance from Japan and the reliability of supply from a safe source across a safe sea route. Shipping time to Japan is seven days, with a round trip, including uploading and offloading, taking about 19 days, Murkowski said. This represents a shipping time several days less than would be required to bring LNG from Lower 48 shale gas plays, a factor that significantly impacts the LNG economics, he said.
“There are no obvious deal killers with bringing the project together at Port MacKenzie, so we’re very optimistic,” Murkowski said.
Public-private partnerships
Under public-private partnership arrangements with two Japanese prefectures, Cook Inlet LNG could be shipped to two planned LNG terminals: one on Japan’s east coast and one on the country’s west coast, Maezawa said. The appeal of the west coast option is that it can mitigate the risk of another major earthquake on the east coast disrupting Japan’s energy supplies. Each terminal would support a gas-fired, combined cycle power station. In 2015 Gov. Bill Walker signed a memorandum of understanding with the governor of the Kyoto prefecture, on the Japanese west coast, for mutual cooperation over the Cook Inlet LNG option.
REI itself consists of a consortium of Japanese industrial companies, gas companies and government entities interested in investing in a secure LNG supply. The company is not asking for government funding but is exploring the possibility of using an AIDEA loan for some of the infrastructure development, Murkowski said.
AIDEA has previously provided some funding assistance for studies that have formed part of REI’s project.
