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Yukon Pacific continues to back its permitted line Company looking at LNG sales to Mexico to lessen amount of gas East Asia markets would need to absorb; focus on gasline to Valdez Kristen Nelson PNA News Editor
Keeping our heads down and doing our work is how Jeff Lowenfels, president of Yukon Pacific Corp., characterized what the company with permits for a gasline and a liquefied natural gas plant at Valdez is doing in the midst of the most widespread interest since the 1970s in commercializing North Slope gas.
Early this year, Willbros, Michael Baker Jr. and Kellogg Brown & Root completed a new cost estimate for the Yukon Pacific trans-Alaska gas system project based on the company’s permits and on actual construction bids which Willbros received for two of the four or five construction spreads for the project.
Lowenfels characterized the project cost estimates as investment quality numbers: A 9.2 million metric ton, two LNG train project, including a North Slope conditioning plant and ships came in at $8.16 billion, exclusive of an estimated $5 billion in construction interest and financing costs.
A 13.8 million metric ton project (three LNG trains) came in at $10.42 billion and a 18.4 million metric ton project (four LNG trains) at a total cost of $12.76 billion.
“If in the LNG business you can bring a project in at about a billion dollars per million metric tons a year, then you’re in the ballpark,” Lowenfels said.
“And as you can see, we are in the infield of the ballpark with these numbers.”
The phase 1 project (9.2 million metric tons) is 1.5 billion cubic feet a day, he said, or about 2 billion cubic feet a day for a 14 million ton project.
At the 2 billion cubic foot level, said Yukon Pacific vice president Wayne Lewis, there is a 30-year supply of gas for some combination of projects. Additional markets investigated Yukon Pacific is also looking at additional markets. Lowenfels said the company is “still quite confident that there’s enough demand in Japan, Korea and Taiwan for this project.”
The company started to look at Mexico because there was clearly a need in Baja Mexico for natural gas.
Lowenfels noted the company is prohibited from taking LNG to the West Coast of the United States – prohibited by the Alaska Natural Gas Transportation Act and by California law which prevents construction of LNG receiving terminals.
While Yukon Pacific was talking to Mexico, he said, it became evident that the concept of bringing Alaska gas to the Lower 48 via an overland pipeline was being revived, requiring the construction of about 2,100 miles of new pipeline in virgin territory.
“It occurred to us, given the sites we were looking at in Baja, that if in fact there is a need for gas in the Lower 48 states, the easiest way to bring it down, the way that presents the least amount of permitting hassle, and we believe the most economic way, is to take some of the gas down as LNG,” Lowenfels said.
There is an existing line that brings gas from San Diego to Baja. “What we are discussing with the Mexicans is the possibility or the desirability of reversing that flow or building a new short pipeline to be able to take gas into southwestern United States during times of an emergency.” LNG to Baja would meet emergency needs Lowenfels said that Yukon Pacific does not believe that the price of gas in the Lower 48 will remain high.
“One of our fears as Alaskans is that if you build an overland pipeline route based upon today’s prices and the prices collapse, it isn’t going to be the people of Chicago holding the bag, it’s going to be the people of Alaska,” he said.
Once you build a pipeline, he said, you’ve got to use it.
By sending gas to Baja as LNG, “we’ve got the ability to be able to turn on and turn off gas flow to the southwestern United States. When it’s needed you put it through. And when it’s not needed, you don’t.” Baja independent of Lower 48 prices Lowenfels said Yukon Pacific believes “Baja will be a market regardless of what the price of gas is in the Lower 48 states. There is no indigenous supply of natural gas in Baja Mexico” and other than the pipeline from California into Baja, there is no pipeline system to take gas to Baja Mexico.
“They need gas,” Lowenfels said. “They have power plants and desalinization plants which are using fuel oil.” The LNG price is more attractive than fuel oil on a long-term basis and they want to use the waste cold associated with LNG. The waste cold would be put through turbines as they make energy to make that process more efficient and they would use the waste cold to chill agricultural products and seafood, “just as they do in Japan and other places where there are large LNG receiving facilities.”
Based upon conversations Yukon Pacific has had so far, Lowenfels said it appears that as much as two and a half million tons of LNG could be consumed in Baja. “Since it’s only two-thirds the distance to the Asian market, it’s a very attractive opportunity we see for Alaskan gas.”
“And then add to that, if you do believe that the price of gas in the Lower 48 states is going to remain high, it is a mechanism to bring Alaskan gas to the Lower 48 states without having to build 2,100 miles of pipeline. And without having to be dependent upon putting this pipeline through Canada. So it’s a very, very attractive opportunity.”
“We’ve had several meetings and we’re going to have several more this month, so it’s something that people need to stay tuned to.” Other markets also considered Yukon Pacific has also looked at Hawaii, which also has a need for natural gas.
“The difference is that in Hawaii there isn’t the ability to sell the gas in large concentrations to one area. And if we can figure out how to handle that problem, Hawaii would be a very attractive market for this gas.”
Neither Hawaii nor Baja have LNG receiving facilities, Lowenfels said, but such facilities are far cheaper than the LNG producing facility.
Adding a Mexico market for LNG would mean, he said, “that the bite which Asia has to take is smaller and easier to chew. It means that ramp up can be quicker.” Problems with Canadian line Lowenfels said Yukon Pacific doesn’t believe the economics are there for an overland pipeline route to the Lower 48 and doesn’t think people understand what’s already in place.
Lowenfels said he worked with the Alaska Natural Gas Transportation Act from the time it was passed, first as an assistant attorney general representing the state of Alaska and then as general counsel for Yukon Pacific, “and that act chose — and unfortunately, irrevocably — the route and the company.”
The Alaska Natural Gas Transportation Act, a presidential decision by President Carter and a treaty between the United States and Canada all mandate the Alcan Highway route if you are going to take gas from Alaska to the Lower 48 through Canada, Lowenfels said.
“There are no other options available unless you have a change in the act of Congress, a change by the Parliament of Canada and an agreement by the United States and Canada from a treaty perspective to do away with the previous acts.” Gas must also use existing Canadian lines Lowenfels said the gas transportation system mandated by Congress involves not only the Alaska portion and “a major portion in Canada which has not yet been build, it also involves something known as the pre-built,” which starts at Caroline, has been expanded once before, and is full. It includes the Foothills project which already carries gas going to the United States, and lines down to Chicago and to San Francisco. “These are full,” Lowenfels said. “These are common carrier pipelines. I don’t think,” he said, “the Canadian folks who are selling gas down here necessarily want to be displaced.”
The price of gas drove exploration efforts down between 1998 and 1999, Lowenfels said, but “as soon as the price of gas went up, the rig counts went up. … It takes six to 18 months for new supplies to hit the market. And they will. And when that happens the price of natural gas will drop below $3.”
And, he said, a lot of futures gas prices are being driven by forecasts for a colder winter. “So we’ve got a combination of what I call voodoo economics, i.e. weather forecasting relationships and we have a classic supply and demand situation created by low prices.”
“So we just simply don’t see the price in the Lower 48 states being high enough for long enough periods of time to sustain the construction of an overland pipeline to the Lower 48 states.” Price in Asia remains high But, he said, the price of gas has remained high in Asia. “It’s now actually over $5. We predicate our product on about a $3.25 to $3.50 price. And frankly, it’s been at that range basically the entire time we’ve been working on this project.”
In the Lower 48, Lowenfels said, there is gas-to-gas competition: “When the price of gas is low, nobody looks for it, the supply of gas diminishes. The price goes up. Gas-to-gas competition.”
“Whereas in Asia, it is gas-to-oil competition and the price of gas is pegged — just like it is in Anchorage — on a basket of oils going into Tokyo.” Gas supplies to Alaska a concern The gas supply in Anchorage is also a concern, Lowenfels said. “Call it a deliverability problem. Call it potential shortages. We have a serious problem developing here.”
“Now frankly, as an Alaskan, and more important as a selfish homeowner here in Anchorage, I don’t care if the bastards in Chicago freeze to death. You’re not talking my gas away from me to give it to people in Chicago,” he said.
“Now, when we talk about this, what we mean is a pipeline to Valdez with a spur line from Glennallen to Wasilla.”
“As we’ve said before, this isn’t gas for Tokyo: this is gas for the people of Alaska and the folks in Tokyo help us pay for it.”
“Now you can have people tell you until they’re blue in the face when the price of gas goes up we’ll find more gas in Cook Inlet. But that’s just not the history of what’s been happening out in Cook Inlet. We’ve been looking for gas and oil for 25 years. We have not made any significant new gas discoveries in 25 years in Cook Inlet and they’ve been looking.”
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