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Vol. 23, No.19 Week of May 13, 2018
Providing coverage of Alaska and northern Canada's oil and gas industry

Gas sales agreement

BP signs with AGDC to provide Prudhoe, Thomson gas to Alaska LNG project

Kristin Nelson

Petroleum News

The Alaska Gasline Development Corp. has taken another step in its quest to commercialize North Slope natural gas, a plan which involves moving the gas to Southcentral Alaska on a proposed 800-mile pipeline, liquefying it and shipping it to buyers in the Far East as LNG.

BP Alaska and AGDC said May 7 that they have agreed to key terms of a gas sales agreement, including price and volume, with terms captured in a gas sales precedent agreement signed May 4.

The parties said in a joint press release that they anticipate finalizing a long-term gas sales agreement this year, under which AGDC would purchase BP Alaska’s share of 30 trillion cubic feet of natural gas from the Prudhoe Bay and Point Thomson units.

The terms of the agreement were not released, but AGDC has said that it must be able to sell gas in Asia at $8 per million British thermal units to be competitive and with shipping to Asia estimated at 80 cents per million Btu, financing costs at $4.75 and system operations costs at $1.45, that leaves $1 per million Btu for resource owners.

The BP view

BP is the Prudhoe Bay operator and owns a 26 percent share of that field as well as a 32 percent share of the Point Thomson field.

“BP has a long history in Alaska and Prudhoe Bay,” BP Chief Executive Bob Dudley said in the joint statement. “We are very pleased to be part of the State’s vision to bring Alaskan natural gas to new and expanding markets globally. We think this is good for the State, good for BP and good for the environment.”

“The Alaska LNG project has made significant progress over the past year, and BP is pleased to sign this agreement,” said Janet Weiss, BP Alaska president. “This is an important project for the future of the Alaska oil and gas industry.”

AGDC

AGDC President Keith Meyer called the agreement “a significant factor in progressing the Alaska LNG Project. We have secured the customers, we have progressed on the pipeline build with regulators and the finance community and now we have a commitment that there will be gas to sell and put through the pipeline.

“I look forward to continued negotiations to secure supply from the other North Slope producers.”

In November, President Donald Trump and President Xi Jinping of China witnessed the signing in Beijing of the five-party joint development agreement to monetize Alaska’s natural gas.

The five parties are AGDC, the state of Alaska, China Petrochemical Corp. or Sinopec, CIC Capital Corp. and the Bank of China. Meyer said in a Nov. 9 press release that the joint development agreement brought together “the potential customer, lender, equity investor, and developer” with a goal of “crafting mutually beneficial agreements leading to increased LNG trade between Alaska and China.” One of the goals in the agreement is for the parties to work together on the opportunity of delivering 75 percent of the LNG produced in Alaska to China.

The first timeline in the agreement is May 31, by which time the parties hope to be able to determine the Chinese disposition of 75 percent of the LNG; identify how much involvement Sinopec will have in engineering and construction; develop “the general framework and indicative pricing for potential and customary strategic financing and international project financing for Alaska LNG”; and explore the feasibility for the parties to invest in the project.

The goal for definitive agreements is the end of the year, which is when the agreement expires unless the parties agree to extend it.

The state

“During my call last week with BP’s chief executive officer, Bob Dudley, I thanked BP for its commitment to the Alaska LNG Project. I also commend Keith Meyer and his team at AGDC that worked to make this historic deal happen,” Alaska Gov. Bill Walker said in a May 7 statement.

“This agreement means Alaskans are one step closer to finally monetizing the vast reserves of natural gas on the North Slope. The end result will be thousands of jobs, a significant reduction in energy costs to power homes and businesses, and cleaner air. Having BP - one of our longtime participants in this project - commit its share for the gas on the sale underscores the progress we continue to make to build a stronger Alaska.”



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