Discussions are underway between Alaska Gasline Development Corp., the state-owned gas corporation, and ConocoPhillips on a possible purchase of the mothballed liquefied natural gas plant at Nikiski, near Kenai south of Anchorage.
AGDC officials discussed the matter in briefings on the Alaska LNG Project before legislative committees in Juneau.
The idea is at an early stage. “We haven’t signed a confidentiality agreement yet,” said Frank Richards, AGDC’s engineering vice president, in a Jan. 23 Senate Resources Committee hearing.
AGDC also disclosed other moves toward expansion including the opening of an office in Houston, Texas, along with one in Tokyo, which was announced earlier in January. The Houston office will cost AGDC about $1 million a year to operate, AGDC told lawmakers.
State Sen. Cathy Giessel, chair of the Senate committee, expressed concern that the Houston expansion was not discussed in a public session by AGDC’s board.
“The last board meeting was open for 20 minutes and then went into executive session for several hours,” Giessel said. The stated purpose of the executive session was “infrastructure,” but there was no other information, she said.
Cooperative agreement with BP
In another development, AGDC said BP has entered into a cooperative agreement with AGDC to supply expertise on developing a commercial structure for the gas and LNG project.
BP, a major North Slope producer, would supply expertise to support AGDC’s proposed commercial innovations, such as third-party equity investment and a tax-free status, that would allow Alaska LNG to lower costs of supplying liquefied natural gas, Damian Bilbao, the company’s vice president for Alaska gas ventures, told the Senate Resources Committee.
The agreement will contribute “our efforts and resources on the three focus areas, first in assessing a tolling model; two in preserving the regulatory progress; and three, identifying financing options for the path forward,” Bilbao said.
“BP is committing people and funding to this joint effort although it will be an effort led by a much smaller group of people than during the completed pre-FEED,” or preliminary engineering, he said.
BP’s involvement as well as a contract signed last fall with ConocoPhillips on joint-venture marketing of LNG, are giving the state gas corporation a needed boost in credibility among legislators.
Benefits to AGDC
On the ConocoPhillips plant, Fritz Krusen, AGDC’s vice president for LNG, said owning the plant, which exported Cook Inlet gas and is not now operating, would help the state corporation in its current bid to build a much larger LNG export project using North Slope gas.
“It would allow us to present an early production scenario to buyers,” Krusen said, where the smaller ConocoPhillips plant, which is capable of manufacturing up to 1.5 million tons per year, could begin exports under sales contracts before a much larger 20 million-ton-per year project is constructed.
A large three-train LNG plant planned as a part of the Alaska LNG Project would be on a 600-acre tract of land near the site of the current ConocoPhillips plant. Krusen said there are many ways AGDC’s acquisition of the plant would benefit the larger project. “It would give up control of much more waterfront acreage,” on Cook Inlet, he said.
Owning the plant would also allow AGDC to tap into a long history of reliable operations and relationships with customers, Krusen said.
State Sen. Bill Wielechowski, an Anchorage Democrat, asked Krusen about the status of discussions with ConocoPhillips during a briefing to the Senate Resources Committee. “If I answered that, I’m afraid I would breach confidentiality,” he replied.
The LNG plant
ConocoPhillips has operated the plant since 1969 but ceased regular shipments to Japan in early 2012. The company put the facility up for sale last fall.
Company spokeswoman Amy Jennings Burnett did not confirm talks were underway with AGDC, but said discussions are being held with a wide range of possible buyers.
“We are in the early stages of marketing the plant. ConocoPhillips is following a standard marketing process for the Kenai LNG plant. A virtual data room, which opened on January 10, provides critical information to help potential buyers assess the asset and determine if they are interested in submitting a formal bid,” Burnett said in an email.
“Interested parties are currently reviewing the data room material and we anticipate receiving bids later this year. At that point, ConocoPhillips will evaluate the bids and determine a path forward. We are not in negotiations with any party at this time,” she said.
When Phillips Petroleum built the plant in 1969 it was to ship LNG made from Cook Inlet gas, then in surplus, to Japan. At the time it was the first long-distance shipment of LNG, and demonstrated the viability of the business.
Much larger shipments of LNG to Japan from Southeast Asia developed in following years.
The Kenai plant made regular shipments until 2012 when long-term contracts with Tokyo Gas and Tokyo Electric expired. ConocoPhillips made periodic shipments on spot sales between 2014 and 2015 but made no shipments in 2016.
The company recently sold the North Cook Inlet gas field, which had supplied gas to the plant, to Hilcorp Energy, which operates other Cook Inlet oil and gas properties.
AGDC takes control
AGDC recently assumed control of the large Alaska LNG Project from a consortium of three North Slope producers and itself, as one of four partners in pre-engineering work, which is now complete.
Given the state of Pacific LNG markets the three producers, BP, ConocoPhillips and ExxonMobil, have stepped back from the project for now, but are supporting the state’s AGDC in continuing work to keep the regulatory process in motion and work on commercial terms that would be available only to a state-owned project.
The formal handover from the previous four-party partnership to the state corporation is only partly complete, AGDC told legislators the week of Jan. 23. Agreements on access to information compiled in preliminary engineering are signed but two other agreements, to allow AGDC to have an option, and control, of 600 acres of land purchased by the three producers at Nikiski for the LNG plant, as well as the federal LNG export license, are still under negotiation,
If built, Alaska LNG would tap 35 trillion cubic feet of confirmed gas reserves on the North Slope with an 800-mile pipeline from north to south across Alaska, and also build the large LNG plant near Kenai and a large gas treatment plant on the Slope.
The companies, and the state, have spent about $600 million to date on pre-engineering, environmental and regulatory work.
AGDC is now working to raise approximately another $1.5 billion to do final engineering while also seeking investors and gas purchasers. The three large producing companies may still participate in the project, they have said.
Overall project cost is now estimated at $45 billion. If built according to AGDC’s current schedule Alaska LNG could be operating by 2025.
