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Vol. 22, No. 8 Week of February 19, 2017
Providing coverage of Alaska and northern Canada's oil and gas industry

Do or die for AGDC

There’s enough money for 18 months, CEO Meyer says; Valdez will cost


For Petroleum News

The president of the state-owned Alaska Gasline Development Corp. says he has funds on hand sufficient for 18 months of work on the Alaska LNG Project and that he doesn’t intend to come back to the Legislature asking for money until there are customers and investors.

In effect, Keith Meyer, AGDC’s chief operating officer, has set a do-or-die deadline of 18 months for the state’s effort to lead the project development. Three major North Slope producers, previously in partnership with AGDC on preliminary engineering, handed the keys for the project over to the state in December. BP, ConocoPhillips and ExxonMobil Corp. say they support the state’s efforts to develop new ways to structure the project and lower costs.

Meyer told the Senate Finance Committee Feb. 14 that he’ll use $102 million remaining to AGDC mostly to complete a Federal Energy Regulatory Commission license application for the big Alaska LNG Project, to do marketing and to research commercial structures that will attract customers and investors.

Two law firms, Greenburg Traurig and Nixon Peabody, have been retained to research a new commercial structure and a possible exemption of the project from federal taxes, both considered essential to lowering the cost of supplying and overcoming high capital costs for the Alaska gas project.

BP is also lending technical assistance to AGDC on the commercial structure.

The Valdez route

On the all-important FERC regulatory front, however, AGDC has been thrown a curve ball by the Alaska Gasline Port Authority, a municipal group formerly affiliated with Gov. Bill Walker. On Feb. 1 the port authority filed a request with FERC, backed by the mayors of the City of Valdez, the Fairbanks North Star Borough, the City of Fairbanks and the city of North Pole, that AGDC do a new analysis of a Valdez terminus for the pipeline rather than at Nikiski near Kenai, the preferred terminus and location of a large LNG plant.

In its preliminary application the Alaska LNG Project, under the previous industry leadership, did analyze Valdez and found Nikiski to be superior. The port authority, which is led by the city of Valdez and the Fairbanks North Star Borough, disagrees with that conclusion.

“The Valdez alternative offers several advantages over the Nikiski alternative, none of which have been acknowledged or analyzed by the Alaska LNG team, including following the trans-Alaska oil pipeline right-of-way from the Prudhoe Bay oil fields to Valdez,” the port authority said in its filing.

Meyer told the Senate committee that AGDC will have to respond to the port authority’s filing, “and this could set us back some months. However, if we were to actually change the project to a Valdez terminus it would set up back years,” he said.

Site preparation issue

Larry Persily, oil and gas advisor to the Kenai Peninsula Borough, said in an analysis that the earlier Alaska LNG analysis of the Valdez option estimated that 39 million cubic yards of overburden and rock would have to be removed at Anderson Bay near Valdez, a possible LNG plant site, and that this would cost $2.75 billion.

Nikiski, in contrast, offers ample open land and requires much less site preparation.

The earlier assessment also cited steep terrain at Thompson Pass, north of Valdez, and the difficulty of building the gas pipeline through the area with the existing TAPS oil line and Richardson Highway nearby. “The high pressure gas pipeline could not be within the TAPS right-of-way due to the oil line’s safety considerations,” Persily wrote.

The three Fairbanks mayors support the Valdez route because it would bring the gas pipeline near Fairbanks, making it less expensive for local residents and businesses to tap. The current pipeline route is west of Fairbanks and would require a spur line, which would add to the gas supply cost.

During Meyer’s Feb. 14 briefing senators asked him about AGDC’s opening of offices in Houston and Tokyo. Meyer said the state has taken over some office space being vacated by ExxonMobil, which had been used for people working on Alaska LNG, and that it would be used by contractors working for AGDC.

It’s important to have a presence in Houston because most major Asian LNG buyers also have offices there, Meyer said, which will enhance communications and the marketing effort.

The Tokyo office is very small and will be used by the state’s contracted representative, a retired Mitsubishi Corp. executive, he said. It is also located in the same building as ConocoPhillips’ Japan office. AGDC is now working with ConocoPhillips in a joint-venture LNG marketing initiative.

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