Alaska LNG Project talks between the state and North Slope producers have shifted to a possible new ownership structure for the giant project, acting state Natural Resources Commissioner Marty Rutherford confirmed in an interview.
Rutherford is the state’s lead in working with BP, ConocoPhillips and ExxonMobil, the industry partners in Alaska LNG.
In a press conference last February Gov. Bill Walker and senior company officials announced they would seek ways of reducing costs for the project which could include a new partnership arrangement.
“Those transition discussions are continuing,” Rutherford said.
Talks between the state and the companies are now proceeding one-on-one and there are no longer the group negotiations that were underway last year on commercial terms, like a gas balancing agreement, under the partnership structure envisioned earlier.
That structure involved each North Slope gas owner, including the state, owning a percentage of the Alaska LNG Project in proportion to its gas ownership.
That would have the state own about 25 percent, combining its royalty and tax share of the approximate 35 trillion cubic feet of known slope gas reserves. The three producer companies would own the remaining 75 percent in percentages roughly similar to the state’s share.
Structure may change
That structure may change, Rutherford said.
“The current price environment has caused every company to ratchet down expenditures, and there is great interest in how to do the project with the lowest cost of supply,” of LNG, she said.
Current talks between individual companies and the state involve the willingness of each firm to take an equity share in the project or to sell its gas. “There are different perspectives (among the companies) on the best path forward, to bring the highest value for the gas, and what role in the project each company will feel most comfortable with,” Rutherford said.
“There could be a larger role for the state” in the project because the state has tools available that could lower the cost of supplying LNG, such as tax-exempt bonding authority for parts of the project, she said.
“We are the most serious (among the Slope gas owners) about not letting the schedule slip because we have only one LNG project,” whereas the other partners have a diverse set of interests in LNG, including projects elsewhere,” Rutherford said.
However, the company partners don’t want schedule slippage either. “All of the producers want to monetize the gas,” she said.
Concern over FEED delay
There is concern over delays in a decision to proceed to final engineering decision, or front-end engineering and design, in 2017, but there is enough flexibility in the schedule that a 2024-25 completion date is still possible even if there are delays in the FEED decision, Rutherford said.
A decision to do final engineering is a big step because of the expense involved, which is estimated at $1.5 billion to $2 billion. The current work underway, the pre-front end engineering and design, will cost about $600 million.
The pre-FEED work, which is being managed by ExxonMobil, will be finished at the end of 2016 as scheduled.
However, there are minor slippages in the schedule on the regulatory front. Larry Persily, oil and gas advisor to the Kenai Peninsula Borough, said he has been informed that completion of several resource reports required by the Federal Energy Regulatory Commission may not be completed in the second quarter as had been planned.
Two of the reports, the formal project description and the analysis of alternatives, will be completed and turned in on time, Persily has been told. Those will be available to the public and will be of interest because the project description will have a great deal of general information, and the alternatives studies, such as a route to Valdez, will also be of interest.
One report still being worked, a socio-economic analysis, will also be of interest when it is completed, particularly in Fairbanks and the Kenai Peninsula Borough, which will feel the construction impacts.
Also, the Alaska LNG Project team has advised FERC that its formal application for authorization to build the project will not be done in September, as was planned, but might instead be done toward the end of the year, perhaps in December.
