ConocoPhillips is seeking to extend its liquefied natural gas export license.
A subsidiary of the company recently asked the U.S. Department of Energy for permission to ship as much as 40 billion cubic feet of natural gas from its facility in Kenai. The authorization would cover a two-year period beginning Feb. 19, 2016.
The authorization would allow ConocoPhillips Alaska Natural Gas Corp. to ship supplies on behalf of its affiliates or other companies to any country allowed by federal law. The request officially covers two groups of countries: those with a free trade agreement with the United States and those without an agreement where trade is nevertheless allowed.
ConocoPhillips is currently operating under a license that expires on Feb. 18, 2016, for countries with the agreement and on April 13, 2016, for countries without the agreement.
If approved, the current request would cover both groups of countries, and ConocoPhillips would relinquish the remainder of its existing authorization.
The company made six shipments this year, including three in the third quarter.
Shorter-term licenses
The pioneering LNG facility originally operated under long-term licenses: first from 1967 to 1984 and then from 1988 to 2004. (Both licenses included amendments along the way.) Since then, licenses have been shorter, reflecting the reduced importance of the facility in the global LNG market and concerns in Alaska about dwindling natural gas supplies. In recent years, ConocoPhillips (currently alone but previously with its former partner Marathon Oil Corp.) has only asked for extensions in two-year increments.
The biggest hurdle of an export license application is proving that sending volumes overseas is consistent with the public interest. According to ConocoPhillips, regional demand of natural gas is currently being met over the proposed two-year period, and the export facility provides an additional market for producers, which promotes exploration.
The facility is also used during extreme cold weather to provide additional deliverability when consumers demand more natural gas than the system can normally provide and to protect field infrastructure by balancing swings in demand between summer and winter.
“Rather than viewing the export and local markets as mutually exclusive, in this instance they should instead be seen as symbiotic,” the company wrote in its Sept. 28 application.
With Hilcorp Alaska LLC having contracted to meet much of the regional demand through early 2018, some smaller independent companies have worried about being shut out of the market. This year, third parties used the export facility to ship overseas.
In 2013, Alaska officials asked ConocoPhillips to seek an extension of its export license as a way to create an incremental short-term market for these smaller companies. At the time, the company was planning to allow the license to expire without renewal. The company had announced plans in 2011 to mothball the facility for lack of worthwhile contracts overseas, but had unexpectedly continued operations in 2012 and into 2013 to accommodate increased Asian demand as Japan favored natural gas over nuclear power.
According to ConocoPhillips, those concerns from 2013 remain valid today. Using Alaska Oil and Gas Conservation Commission data, the company contends that the months in 2013 when the facility was shuttered led to a monthly average of 145 million cubic feet per day of Cook Inlet natural gas being shut-in for lack of regional demand.
ConocoPhillips also cited an April 2015 report from the Potential Gas Committee suggesting that the Cook Inlet and Susitna basins most likely contain more than 4.4 trillion cubic feet of recoverable natural gas resources more onshore sources.
Given the importance of the export operation for smaller producers without major supply contracts in the region, ConocoPhillips secured many letters of support for its application.
“In addition to operating producing gas wells, AIX holds exploration leases in the Cook Inlet area. Future development and exploration decisions are dependent upon the assurance of market demand for AIX’s future natural gas production. Accordingly, AIX stands in support of the continued export of LNG from the Cook Inlet Basin,” AIX Energy LLC Manager Fred Tresca wrote in a June 25, 2015, letter to federal officials.
“Aurora recognizes LNG manufacture and export as an integral component to encourage exploration, as it provides an alternative market for locally produced natural gas, which would otherwise not be available. Aurora has utilized this market as one of several for sales of our natural gas production,” Aurora Gas LLC President Ed Jones wrote June 25.
“While Furie is committed to meeting in-state gas needs, it welcomes the opportunity for placement of new gas production to the world LNG market. Access to the plant under commercially reasonable terms will facilitate Furie’s ability to develop future gas prospects thereby benefitting the State of Alaska and additional job opportunities for our fellow Alaskans,” Furie Operating Alaska LLC Senior Vice President Bruce Webb wrote.
And WesPac Midstream LLC placed some of the success of its potential gas development at the BlueCrest Energy Inc. operated Cosmopolitan unit on exports. The company claims to be capable of producing as much as 70 million cubic feet per day. “However, given the geographic disposition of Alaska’s resources, proximity to markets, the lack of infrastructure and the overall high cost of development, the ultimate success of any program is contingent upon a robust local and export gas market along with the current development incentives provided by the state,” Vice President Michael Cox wrote.
