AKLNG technical work bringing cost down

Market conditions, lack of commercial, fiscal agreements make it unlikely producers will approve move from pre-FEED to FEED

KRISTEN NELSON

Petroleum News

Legislators got good news and not-so-good news June 29 with an update on the Alaska LNG Project from the technical team and the state’s producer partners. (See July 3 issue for part 1 of this story on the state team update from Alaska Gasline Development Corp. President Keith Meyer.)

Steve Butt of ExxonMobil, the AKLNG project manager, said technical work was on schedule and work done in the pre-FEED phase has cut costs.

He also addressed some of the issues raised by the AKLNG producer partners, BP, ConocoPhillips and ExxonMobil, who said concerns about market conditions, the cost of the project and lack of fiscal certainty and commercial agreements would impact decisions on moving to the next stage of work.

Design work

Work completed since January includes confirmation that a 42-inch pipe is the most efficient, work which took four to five months of the pipeline team’s time and cost some $22 million, he said.

The project has three parts: the liquefied natural gas plant at Nikiski, the pipeline and the gas treatment plant on the North Slope.

Butt said the LNG plant is significantly different now than it was in the concept phase, with modified liquefaction technology. Optimization savings for the LNG plant include revised layout, reduced material offloading facility size and optimized LNG storage capacity.

Work also determined that the project can have simultaneous operations, with LNG being generated while work is being completed at the plant, he said.

Less strain-based pipe

Some heater stations have been removed from the design and the route has been confirmed.

Work on design for the North Slope gas treatment plant has resulted in reduced module weight with about 40,000 tons of equipment cut out in the final design and layout optimization, Butt said.

The AKLNG team has also determined that the project could begin filling the pipeline with just the first train at the GTP and thinks it may be possible to operate three LNG trains with just two GTP trains in the early days of the project when CO2 is less concentrated. Prudhoe Bay has a high level of CO2, Butt said, about 11 to 12 percent of natural gas at the field, creating challenges. Other LNG projects vent CO2, he said, and previous projects in Alaska planned to vent CO2. AKLNG will manage CO2 through the GTP, working with the Prudhoe Bay operator to put CO2 back into the ground, Butt said.

Pre-FEED deliverables are due in September, the joint venture agreement expires in June 2017 and the existing budget expires at the end of 2016, he said.

Asked about his level of confidence that the project would move forward, Butt said at the right time the known resource would be developed; “I just don’t know if that time is today,” he said.

The project team has driven the cost down from $45-$65 billion to the low end, cutting perhaps 10-15 percent of the cost out, but the market has gone down by 50-60 percent, he said.

“I think it’s a really heavy lift,” Butt said. The project doesn’t yet have the Federal Energy Regulatory Commission environmental impact statement and with the challenges and unresolved risks, “I don’t know if that day is today.”

He said all parties will have 120 days to decide if they want to move forward once pre-FEED deliverables work is completed in September. The joint venture agreement partners have funded work through 2016. A draft budget for 2017 will be out for approval in October and Butt said how the parties would vote he doesn’t know.

JVA partners

Darren Meznarich, project integration manager for ConocoPhillips for ANS gas, said ConocoPhillips is committed to completion of pre-FEED deliverables in 2016, but, with weak oil and gas prices, the project “faces significant head winds” including a 60 percent reduction in LNG prices in the Far East.

While ConocoPhillips expects the market to strengthen at some time, Meznarich said the company is unlikely to be ready for a FEED decision in 2017.

But, he said, ConocoPhillips won’t stand in the way of a project should others want to proceed and has signed a gas availability agreement with the state.

Bill McMahon, senior commercial advisor with ExxonMobil, said his company continues to work to advance pre-FEED deliverables and supports a project that takes an aligned approach such as that under AKLNG.

He said the LNG market is global and projects need to have a competitive cost of supply.

In the governor’s January letter outlining agreements which needed to be completed by the end of the session there was no mention of a fiscal agreement, McMahon said, and fiscal terms are a requirement for Exxon.

He said the state introduced an alternate plan the week of June 20 along with a transition plan out of the heads of agreement plan to an alternate state proposal. ExxonMobil will continue to work with the state to understand this new approach, McMahon said.

David Van Tuyl, regional manager for BP in Alaska, said in introductory remarks that with current low energy prices more than a trillion dollars of projects worldwide have been shelved: The AKLNG project has not been shelved, he said, and the partners are continuing to work together.

Van Tuyl said some $600 million has been spent on AKLNG, and the next phase, FEED, is estimated to be more than twice that much, perhaps as much as three times, a commitment which deserves “a careful evaluation and a thoughtful decision” before BP or the state commit resources.

He said BP understands the state’s desire to move the project and its need for a new revenue source in the 2020s. “But we don’t want to move quickly at all costs. We don’t want to rush into the largest energy project in North America that only ends up losing lots of money for all of us.”