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Alaska’s other gasline group may have buyer for LNG Alaska Gasline Port Authority, California company Crystal Energy will start negotiating letter of intent in February Larry Persily Petroleum News Government Affairs Editor
The Alaska Gasline Port Authority, a consortium of municipalities working since 1999 to put together a project to ship and sell liquefied North Slope natural gas, will soon start negotiations to possibly supply LNG for a proposed offshore California receiving terminal.
The port authority Jan. 28 announced it had signed a memorandum of understanding with Crystal Energy LLC, calling for the authority and company to start negotiating a letter of intent for an LNG supply contract.
The port authority, comprised of the North Slope Borough, Fairbanks North Star Borough and city of Valdez, wants to sell bonds to build a gas pipeline to Valdez, a liquefaction plant and shipping terminal to sell LNG anywhere it can find buyers around the Pacific Rim.
In addition to finding financing and buyers for the gas, it also needs to strike a deal for North Slope producers to sell gas to the port authority.
The memorandum of agreement says the port authority, which has no assets and was formed solely to build the LNG project, will negotiate to supply Crystal Energy with up to 800 million cubic feet of gas per day for 20 years. Project would use 1979 production platform Crystal Energy, of Ventura, Calif., is working to develop an LNG receiving terminal 11 miles offshore of Oxnard, in the Santa Barbara Channel, about midway between the coast and Santa Cruz Island, 50 miles up the coast from Los Angeles.
The offshore platform is among seven projects proposed by seven different developers for supplying LNG to the U.S. West Coast, either from new receiving terminals in Southern California or just past the border on Mexico’s Baja Peninsula. None have started construction, though several are into the permitting process.
Crystal Energy has not submitted any permit applications to the U.S. Coast Guard, state land-use agencies or the Federal Energy Regulatory Commission for construction or operation, but expects to start turning in its paperwork early in February, said Lisa Palmer, company spokeswoman.
The company plans to convert a former production platform into an LNG receiving terminal, with total cost for the tanker dock, platform conversion, regasification facilities and pipelines to shore and connecting to Southern California Gas Co.’s existing pipeline grid estimated at $300 million, Palmer said.
Crystal Energy last year signed a lease with Venoco of Carpinteria, Calif., to use the company’s Platform Grace for the LNG project. The platform, built by Chevron in 1979 for its offshore California production, was idled in 1997 except for serving as an oil and gas transportation hub for production from nearby Platform Gale.
Chevron sold the platform to Venoco in 1999. Start-up date projected for 2007 Crystal Energy hopes to obtain the necessary permits in 2005 and start operations in 2007, Palmer said. Because the port authority could not deliver LNG that quickly, she said, Crystal Energy is considering Alaska as a possible long-term supplier while also looking for a short-term supply to fill the gap.
The company also is talking with other potential, long-term suppliers, she said.
And just as Crystal Energy is looking at potential LNG suppliers other than Alaska, the port authority is searching for other buyers, said Bill Walker, city attorney for Valdez and spokesman for the port authority.
The proposed Valdez project needs to sell 2 billion cubic feet of gas per day to meet the economic feasibility test for financing, Walker said, and will continue looking for other possible buyers to fill out its capacity.
One problem facing the port authority is the lack of LNG tankers to carry the gas to a California terminal. Federal law — the Jones Act — requires the use of U.S.-built, U.S-flagged and U.S.-crewed vessels for interstate shipments. No U.S. shipyards have built an LNG tanker in 25 years, and all of the old vessels have been reflagged as foreign vessels.
The domestic shipbuilding industry has said it could take up to five years before it could deliver a new LNG tanker. Cost also is an issue, with domestic tanker construction estimated at twice the cost of foreign shipyards.
Walker said the port authority has some ideas on how to deal with the Jones Act, but he declined to discuss any of the possibilities. “That’s not a killer,” he said of the tanker issue. Negotiations to start in February The port authority and Crystal Energy will start negotiations on the letter of intent in February, with a deadline to finish the talks by the end of the year, Walker said.
And although the port authority has worked since its beginning toward the possibility of building its own line from the North Slope to Valdez, Walker said it makes sense to talk with the North Slope producers and pipeline operator MidAmerican Energy Holdings Co., both of which have proposed a gas line from the slope and through Canada to mid-America markets. The port authority could save a lot of time and money by simply building a line branching off from the main pipe instead of coming from the slope with its own line, Walker said.
Time, however, could be an issue, as MidAmerican, with the fastest schedule of the two proposals, doesn’t expect to start moving gas before December 2010, three years after Crystal Energy wants to start operating its LNG terminal.
Crystal Energy does not operate any gas receiving or distribution facilities or pipelines, Palmer said. It was formed after the California energy crisis of 2000-2001 specifically to build an LNG project, she said. “We set out to design a project that has the fewest environmental impacts possible.”
The gas line from the offshore platform would follow an existing marine pipeline corridor and land near a power generating station. Using an existing platform and feeding into a nearby gas distribution network will help reduce project costs, Palmer said. Former energy trader leads effort Crystal Energy is wholly owned by Small Ventures USA LLC, a Houston-based privately held firm headed by William Perkins III, who founded Small Ventures in 1997 after working as a director and managing partner at energy trading companies, according to his biography at a June 2003 LNG conference in Houston.
Perkins set up Small Ventures to provide “venture capital access and consulting services,” according to the biography.
Crystal Energy’s competitors for the Southern California LNG market include projects proposed by Shell, Marathon, Sempra Energy, ChevronTexaco, Mitsubishi and BHP Billiton, an Australian resource development company. The Mitsubishi project is targeted for the Port of Long Beach, next door to Los Angeles. The BHP receiving terminal also would be offshore of Oxnard, Calif., with a projected 2008 in-service date.
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