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Vol. 25, No.27 Week of July 05, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

New cost estimate drops Alaska LNG project cost by $5.5B, 12.4%

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Kristen Nelson

Petroleum News

The Alaska Gasline Development Corp. released an updated $38.7 billion cost estimate for the Alaska LNG Project on June 25.

AGDC said the updated estimate reflects a $5.5 billion, 12.4%, cost reduction off the previous $44.2 billion cost estimate compiled in 2015 and said the decreased cost “will increase the project’s ability to deliver natural gas to Alaskans and LNG to export markets at competitive prices.”

AGDC said cost reductions capitalize on technology and process improvements in the LNG industry over the past several years, including advances in gas liquefaction technology and modular construction techniques, lower engineering costs and a streamlined project management team.

The new estimate is the result of 14 months of work including third-party natural gas and LNG expertise, with AGDC staff working with representatives from BP, ExxonMobil and Fluor Corp.

“These updates improve the competitive position of the Alaska LNG Project and its ability to deliver LNG and natural gas at favorable prices,” said AGDC President Frank Richards. He said AGDC is “incorporating these results into our discussions with potential partners as we work to transition to a new market-led project team and maximize project benefits for the State of Alaska. While today’s results strengthen the case for developing this project, it will ultimately be the market that determines the best path forward.”

Challenges remain

The Federal Energy Regulatory Commission authorized AGDC to construct and operate the Alaska LNG Project on May 21. The project still requires permits, and economics remain an issue.

AGDC is a state entity and project leadership by the State of Alaska is coming to an end.

After FERC issued the final environmental impact statement for the project March 6, Gov. Mike Dunleavy said: “The final EIS is a milestone in the Alaska LNG permitting process - a process still with significant hurdles. … FERC licensure is an important component in determining if Alaska LNG, which must be led by private enterprise, is competitive and economically advantageous for development.”

The AGDC board does not support AGDC continuing a project sponsor beyond Dec. 31.

Materials for an April 9 board meeting included the statement: “In the event there is not sufficient interest from Strategic Parties to lead the Alaska LNG Project, an open solicitation of interest will be made to other parties.”

The board, administration and Legislature “will define an acceptable role, if any, in the Alaska LNG Project,” the meeting materials said.

If there is insufficient interest by a new project sponsor, “AGDC will put the Alaska LNG Project assets up for sale in a formal RFP process.”

June 25 updates

Materials from the June 25 board meeting include a discussion of objections to the FERC’s May 21 order.

Interveners needed to file within with 30 days of the FERC order, and FERC received two requests for rehearing of its order: from the Matanuska-Susitna Borough and from the Center for Biologic Diversity and Earthjustice on behalf of Chickaloon Village Traditional Council, Northern Alaska Environmental Center and the Sierra Club (see story in June 28 issue of Petroleum News).

If FERC doesn’t act on a request within 30 days, it is denied, and unless ordered by FERC, the filing of a request for rehearing does not delay the order.

Cost estimate update

In describing the cost estimate update materials for the June 25 meeting said the work was initiated because of positive results from an April 2019 cost reduction workshop with BP and ExxonMobil. The scope of the project, which Fluor Corp. was contracted to perform, was targeted at cost reduction opportunities generally greater than $100 million.

Cost reductions were largely influenced by material and equipment sourcing market changes; best in class contracting and execution strategies; re-thinking third-party power services; liquefaction technology; and reduction in risk.

Cost saving changes

In a January update on the project to House Resources, Richards, then the company’s senior vice president, program management, said one source cost reduction would be increasing use of modularization, allowing a significant decrease in costs because construction is done elsewhere and facilities assembled on site.

In an article in the June issue of LNG Industry, Fritz Krusen, formerly a vice president at AGDC, gave an update on the project and illustrated cost reduction planned for the liquefaction facility planned for Nikiski.

Onsite construction was planned, Krusen said, but the plan now is that LNG storage tanks at the facility will use precast, pre-stressed concrete technology for both inner and outer tanks, allowing offsite pre-casting, reducing labor required at the site and reducing the costs. He said the technology, with panels assembled on site in what he described as analogous to staves being made into barrels, has been successfully used in a number of applications in the U.S., including a smaller LNG tank which went into operation in Fairbanks in December 2019.

- KRISTEN NELSON



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