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NordAq backing LNG export plan The independent believes eligible suppliers should band together to reopen mothballed facility; sees demand and price incentives Eric Lidji For Petroleum News
Another small Cook Inlet independent is throwing its weight behind a proposal to resume liquefied natural gas exports from the mothballed ConocoPhillips facility in Nikiski.
“NordAq is engaged in active exploration for additional gas reserves in Cook Inlet and is committed to finding new reserves of natural gas to both sustain the local utility market and provide an additional surplus that could be directed for LNG as an export or for in-state use,” NordAq Energy Inc. President Robert Warthen wrote to the Regulatory Commission of Alaska. “In the absence of an LNG option natural gas prices will continue to remain artificially low and create a disincentive for exploration and development.”
The RCA is not responsible for approving exports, but because the state regulatory body approves local gas supply contracts it is seen as the de facto price-setter for the region.
Just last year, ConocoPhillips announced plans to mothball the 45-year-old export terminal because shrinking local gas supplies made it difficult to secure contracts with its traditional Asian buyers. Unexpected demand from Asia ultimately kept the facility open through March 2013, when the most recent federal export license expired.
The market completely changed, though, when Hilcorp Alaska LLC signed short-term supply contracts with the major buyers in the region, including Enstar Natural Gas Co.
With local demand met through early 2018, many producers worry about being shut out of the market, should they discover new supplies. To guarantee companies have an incentive to explore, the State of Alaska recently asked ConocoPhillips to apply for a three-year export license for the facility. ConocoPhillips said it is evaluating the proposal.
NordAq is currently considering two natural gas developments: the Shadura project in the Kenai National Wildlife Refuge and the Tiger Eye unit on the west side of Cook Inlet.
Market and pricing The current conversation about the facility has been about finding a way to expand the market for Cook Inlet gas. By focusing on the “artificially low” prices fostered by the absence of the facility, NordAq is raising an issue previously absent in the discussion.
It is inconclusive whether exports would drive up local prices, or whether local demand would drive up export prices, especially because local prices and export prices are both determined by multiyear contracts, and also because, in the past, ConocoPhillips and its former partner Marathon have typically supplied the plant, in addition to operating it.
The proposed arrangement would turn the facility into a market for numerous third parties, which could create relatively more liquidity in a notoriously illiquid market.
Sensing this, Warthen wrote that NordAq “believes that an export renewal should not be the singular burden of one operator to support. All companies with surplus gas reserves should be considered as candidates for providing gas to manufacture and export LNG.”
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