ConocoPhillips has purchased Marathon Oil’s 30 percent share in the Kenai liquefied natural gas plant.
ConocoPhillips Alaska spokeswoman Natalie Lowman told Petroleum News Oct. 12 that the sale closed Sept. 26; no financial details were released.
Lowman said ConocoPhillips bought Marathon out because “We really believe that the plant has options for the future and we opted to purchase Marathon’s share so that we could maintain those options ourselves.”
She said there would be no immediate changes. A cargo is scheduled to leave the plant in October or early November and that cargo will probably be all the plant will export this year.
ConocoPhillips will be looking at preserving the plant’s options for the future “and that could include support for an LNG import and regas facility” or resumption of LNG export options, Lowman said.
Long history in inlet
The LNG plant was built by Phillips Petroleum and Marathon and went into operation in 1969, exporting natural gas from Cook Inlet as LNG. In recent years, volumes of natural gas available in the inlet have declined.
In February ConocoPhillips and Marathon Oil said they would place the 42-year-old facility in warm storage because of declining volumes of natural gas supplies and difficulty securing contracts overseas. They have kept the plant active to send additional unexpected shipments to Japan and China.
The LNG facility has provided a stable production base for natural gas, as opposed to dramatic swings in natural gas use for heating and power between summer and winter. And, when deliverability became an issue on extremely cold days in the winter in recent years, natural gas was diverted from the LNG facility to meet local needs.
A new third-party natural gas storage facility is under construction at Kenai to provide gas to meet peak demand.
Asked about concerns that shutting in Cook Inlet gas wells during the summer following the loss of LNG production would permanently damage wells, Marathon told legislators earlier this year that it never assumed the plant would continue indefinitely, and that the company’s gas storage facility in its Kenai gas field has enough capacity to handle the company’s summer gas production, enabling wells to produce year-round.
Market outside Alaska
When it went into operation in 1969, the Nikiski LNG plant was the sole supplier of LNG to Japan; by early this year it was supplying one half of one percent of the Japanese market demand.
LNG shipments from Alaska were once the largest in the world; now they are among the smallest. Supply contracts between Alaska and Japan, which formerly ran for 15 years, now run for only two years.
Dan Clark, ConocoPhillips’ manager of Cook Inlet assets, told Petroleum News in February that options for the plant ranged from closing it, to reconfiguring it, to selling it.
Until the new Cook Inlet Natural Gas Storage Alaska facility, CINGSA, is available in 2013, ConocoPhillips will have to shut in some of its wells during the summer, and because of the aging nature of Cook Inlet reservoirs, how those wells will perform when brought back online is unknown.
ConocoPhillips will continue to operate the Tyonek platform at its North Cook Inlet field and that natural gas will be used to fill local contracts.
The loss of an export market could also impact plans to bring Alaska North Slope natural gas to Southcentral Alaska by eliminating one possible anchor tenant which could keep tariff rates low for residential and commercial customers.
—Kristen Nelson
