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Vol. 15, No. 41 Week of October 10, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

DOE extends LNG export license; 2 more years to ship allotment

The U.S. Department of Energy has given ConocoPhillips and Marathon Oil another two years to ship Alaska liquefied natural gas to overseas markets from a facility in Nikiski.

The companies now have until March 31, 2013, to finish exporting 99 trillion British thermal units of LNG, an allotment that DOE approved in 2008. The companies expect they will have shipped about 55 trillion Btu when the current license expires in March 2011.

In its Oct. 5 decision, DOE decided that the remaining amount “is not needed to meet regional demand” through the extension period. DOE also noted that extending the license would “continue benefits” to the Alaska economy and international trade.

Gov. Sean Parnell and seven Democratic state lawmakers separately asked the DOE to make continued exports dependent on ConocoPhillips and Marathon committing to meet local utility needs. Those requests came from concerns about dwindling gas production in the Cook Inlet basin. DOE, though, said that its process of determining whether or not an application is in the public interest “does not turn on whether applicants for export authority have entered into contractual commitments with local customers.”

ConocoPhillips and Marathon hoped to ease local concerns by negotiating several supply contracts earlier this year. Marathon successfully signed contracts with Enstar Natural Gas and Chugach Electric Association, the two largest users in the region, while ConocoPhillips is still awaiting regulatory approval for a non-firm contract with Enstar.

That contract includes a provision requiring ConocoPhillips to divert supplies from the LNG plant into the local grid, barring technical problems, during cold snaps. But the contracts also tied the fate of local gas supplies to the fate of the export facility by allowing Marathon to curtail volumes if the plant shut down, forcing wells to be shut in.

ConocoPhillips Alaska spokeswoman Natalie Lowman said in an e-mail that the company was very pleased with the ruling. “The LNG facility provides about $130 million per year in economic benefit to the state and local economies and supports about 60 direct jobs and is estimated to support an additional 50 indirect jobs on the Kenai Peninsula,” Lowman wrote. “The license extension also creates the opportunity for continued operation of the plant which will increase the amount of natural gas that will be available for local utility markets, including Anchorage, in the event of supply interruptions or peak demand on cold winter days.”

All three members of the Alaska Congressional Delegation supported exports, as did both houses of the Legislature, several chambers of commerce, and the major utilities.

The Nikiski plant is the only LNG export facility in the United States and has been in operation for more than 40 years. In addition to shipping local natural gas volumes to Japanese markets, it serves as a backstop to the local natural gas system by moderating seasonal swings and providing emergency volumes during peak demand in winter.

—Eric Lidji



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