Three project offices for the Alaska LNG Project - in Anchorage, Houston and Calgary - are up and running, legislators were told Sept. 29 in Anchorage at the first public update on the project since enabling legislation was signed into law in May.
Steve Butt, overall manager for the Alaska LNG Project, said the leadership team for the pre-FEED, front-end engineering and design, phase of the project is in place - with 27 key leadership roles staffed, representing all the companies and with collectively “in excess of 800 years of experience.” An additional 102 team members have been added, with a few more to go, for a total of 130 to 135 people full time on the project, compared to 35 to 40 people developing the project concept.
The project staff will work “with a wide range of contractors involving several thousand people to make sure the work gets done,” Butt said.
The team is co-located - workers are put where the contractors and the work are - to get the work done at the lowest possible cost.
Some $100 million has been spent to date gathering regulatory data in the field and preliminary design work and that will be leveraged by spending about five times that much “to advance the regulatory and design work required to determine whether we go into FEED,” he said.
Alignment
“Alaska LNG project participants are the owners of 99 percent of the gas on the North Slope,” Butt said, and those owners are the producers who bought leases in the 1960s and 1970s and the state of Alaska.
“It creates a very different dynamic for the project” to have the state as an equity participant, Butt said, making the project “one of a kind.”
The project has both “unprecedented challenges and unprecedented opportunities,” he said, and with the state at the table the question “everybody needs to ask themselves is as owners of this gas - what’s the best thing for the owners of the gas to do?”
There are three touchstones for answering questions about the project, Butt said: “How does something influence alignment? How does something influence risk? And how does something influence cost?”
If questions are addressed unilaterally, or win-lose, “it’s a lot more difficult to move something of this complexity forward than if we try and think what is an aligned position that has something that works for all the owners?”
Risk reduction is the goal of the pre-FEED phase, Butt said, which “is all about identifying and mitigating uncertainties.”
When it comes to an investment decision, it isn’t about should the money be invested, he said, but if the money is invested, have the risks been thought through so that “everything that is within my ability to influence has been mitigated,” providing the confidence to tell investors, “yes, if you put up the resources required to do this work we’ll be able to generate the revenues and benefits that we’ve all forecast from this work.”
Cost reduction is important because driving down the cost of infrastructure reduces the cost of supply. Natural gas is a commodity, he said, and a buyer wants to pay “just a little bit less than they’d pay anybody else. If they have to pay a little bit more, they’re probably going to go to somebody else.”
Keeping the cost down is about competitiveness, Butt said: “LNG projects with high cost of supply do not survive because markets go up and markets go down; the only projects that survive are the ones that continue to deliver energy at a cost below their competition, so it’s a competitive imperative: How do I keep my costs down so that this project succeeds so that in a competitive environment the LNG buyers chose to buy LNG from Alaska.”
What can the state do?
Asked what major obstacles to the project the state should be aware of, Butt cited commercial and fiscal uncertainty.
“I know that sometimes when we talk about fiscal and commercial uncertainty it sounds like one party trying to get something out of the other party. I would respectfully suggest that’s not the case at all,” he said. “I would suggest that all the owners need some durable and predictable terms so that when they talk to their constituents or their stakeholders or whatever they are accountable to, they understand that if they invest the type of resources required to execute a project of this magnitude it will generate the kind of benefits that will really help them in the future.”
Rep. Mike Hawker, R-Anchorage, who had asked the major obstacles question, also asked what the commercial parties were doing to protect themselves against the risk that the state would change direction and ask for a bigger piece of the pie or more unilateral control over the outcome.
Butt said it wasn’t just the state. “All these parties as owners have certain issues that are unique to them and challenges to find ways for them to be aligned,” he said.
As to what the producers would do if the alignment in the heads of agreement and the joint venture agreement is compromised, Butt said the answer to that is in the gated process “designed to incrementally increase resource investment into the project as certainty is built.”
If the state - as both regulator and owner - isn’t ready to move forward, “this project is so big and so complex that without the state in lockstep it’s going to be very difficult to move from pre-FEED to FEED. And we’ll have done a lot of great work and we’ll have moved this project to a place where it’s never been before, but we will end up in the same place where it has been before - which is stopped.
“And I hope that doesn’t happen, but I lose a lot of sleep on that one,” Butt said.
