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Kenai LNG 50th celebrated in Japan
Part 2 of 2: Still in family — Operatorship of Phillips/Marathon plant moved from ConocoPhillips in 2018 to Andeavor, now part of Marathon Kay Cashman Petroleum News
The 50th anniversary of the Kenai LNG plant in Nikiski was celebrated at Negishi LNG receiving terminal outside Tokyo, Japan, in a Nov. 6 ceremony hosted by Tokyo Electric Power (now JERA Co.), Tokyo Gas Co., Mitsubishi Corp. and ConocoPhillips Asia Pacific.
The Kenai LNG plant in Nikiski, for decades owned by ConocoPhillips predecessor Phillips Petroleum (plant operator, 70%) and Marathon Petroleum predecessor Marathon Oil (30%, operator of the LNG tankers) began exporting liquefied natural gas to Japan in November 1969, with Mitsubishi acting as a buyer’s agent and Phillips as the seller. At the time, the Kenai LNG plant complex, which includes a docking and loading terminal, was the only LNG export facility in the United States and the first source of LNG to Japanese markets.
The dignitaries that led the Nov. 6 event included Toshihiro Sano, chairman of JERA, Takashi Uchida, president of Tokyo Gas, Takehiko Kakiuchi, president and CEO of Mitsubishi, and Bill Bullock, president, Asia Pacific and Middle East, ConocoPhillips.
“Together Japan and ConocoPhillips pioneered the Asia Pacific LNG market, helping drive economic progress throughout the region. This close relationship endures, as we continue our commitment to safely deliver LNG to the country. We look forward to our continued partnership with Japan, which we see as being a strong, long-term market,” Bullock said in a press release prior to the ceremony.
Alaska Gov. Michael Dunleavy toured the receiving terminal following the ceremony with executives from Tokyo Gas (see posed group photo in pdf version of this story - security rules prevented photos being taken during the actual tour).
“The state of Alaska will continue to look at innovative and economic means to commercialize our vast quantities of North Slope gas, to provide cheap clean energy for Alaskans, to create jobs and strengthen the economy of not only Alaska, but our economic partners, like Japan,” Dunleavy said. “For decades, Alaska and Japanese citizens, businesses, and our governments have formed relationships through cultural, educational, and economic partnerships. I would like to congratulate our economic and energy partners on 50 years of working together and my sincere wish for a continued prosperous relationship between your country and Alaska.”
Gas tug of war starts in 1999 Since 1969, a lot has changed in Southcentral Alaska’s natural gas industry.
Initially the area was awash in gas from the Cook Inlet basin, on and offshore, with only about 50,000 people representing the local market.
To use the vast amounts of stranded natural gas, Union Oil, predecessor to Chevron, opened the largest fertilizer plant on the U.S. West Coast in 1968 in north Kenai using gas to manufacture and export fertilizer to the Pacific Rim; next in 1969, the Kenai LNG export facility at Nikiski began production and started exporting LNG to Japan, both entities employing hundreds of Alaskans and making significant contributions to the local economy. (The population of Kenai jumped from 321 in 1950 to 3,533 in 1970.)
While Southcentral Alaska was awash in natural gas with more and more oil and gas being discovered in the 1960s, the largest nearby residential market for gas, Anchorage, the state’s biggest city, was simultaneously growing,
In 1970, Anchorage’s population was 48,081; by 1980 it had more than tripled to 174,431; by 1990 it was 226,338, by 2010 291,826, and in 2019 the number of inhabitants in the municipality of Anchorage had climbed to 291,538, as compared to an estimated 735,720 citizens statewide.
At the same time, the late 1960’s discovery of the North Slope’s giant Prudhoe Bay oil field had started diverting oil and gas company attention and investment north.
Still, the most active Cook Inlet producers continued to invest in the Cook Inlet basin for several decades - Marathon, ConocoPhillips and Chevron (and its predecessors Union Oil/Unocal).
But after 30 years, Cook Inlet basin natural gas production was noticeably declining and the attitude toward exporting the products made from that gas - LNG and fertilizer - began to shift, with a rift developing between those who wanted the Kenai LNG plant and fertilizer plant to continue production and those that wanted the gas to be kept in Alaska for use by its residents, as evidenced by the following Petroleum News headlines and story excerpts.
* April 28, 1999, Export license extended for Cook Inlet liquefied natural gas: Department of Energy says supplies in Southcentral Alaska should be adequate for projected needs during extension. …
The U.S. Department of Energy … has granted the export license extension requested by Phillips Alaska Natural Gas Corp. and Marathon Oil Co. for exports from the Nikiski liquefied natural gas plant … for a five-year extension of their existing export license for 2004 through 2009. The extension was protested by Enstar Natural Gas Co. … the protestors argued … that approval of the application would cause a shortage of natural gas in Southcentral Alaska during the five-year extension period. ...
* Sept. 28, 2000, Unocal’s Cook Inlet gas program replaces production: Company’s gas currently goes mainly to Nikiski fertilizer plant; for basin the challenge will be to meet gradual growth in demand and peak winter demands. …
* April 28, 2001, New study says Cook Inlet needs new gas reserves: At issue - what can be discovered and developed in Southcentral, what needs to be imported, to keep area running on natural gas. …
Cook Inlet natural gas reserves have been falling since 1982, because no significant new reserves have been added and the area will need new supplies - or storage facilities - to meet peak demand by the end of the decade. …
* Nov. 17, 2002, Unocal closes Kenai office, eliminates 71 positions in Alaska operations. …
Unocal Alaska, Cook Inlet’s dominant oil and gas producer, is scaling back, a move the company says reflects the fact that its business in Cook Inlet is mature, which means declining resources and few …
* March 14, 2004, Cook Inlet natural gas supply goes short: Major industrial gas user Agrium working with exploration companies exploring for gas, might even partner to find more gas. …
The fertilizer plant on the Kenai Peninsula south of Anchorage, Alaska, was built to take advantage of a stranded gas situation, as was the liquefied natural gas plant next door: big gas discoveries. …
* Dec. 19, 2004, Agrium, Unocal settle litigation over gas supplies to Nikiski fertilizer plant: New gas contract runs through end of October, after which plant will close if no new supplies found. …
* Feb. 27, 2005, Good Alaska location goes bad for Agrium: Nikiski fertilizer plant location’s advantages are overshadowed by iffy Cook Inlet gas supply, company says. …
In many ways, Alaska’s Kenai Peninsula is a wonderful place for Agrium Inc. to have a nitrogen fertilizer plant, except for one glaring and perhaps fatal weakness - there doesn’t seem to be enough natural gas. …
* July 17, 2005, Agrium gets gas to keep plant open. …
Agrium said July 14 that it has concluded gas supply contract negotiations with Cook Inlet producers that will allow it to keep its Kenai nitrogen facility open until November 2006. …
* Nov. 20, 2005, Enstar, Marathon strike new gas contract: The new contract should ensure adequate natural gas supplies for Enstar until 2016. …
Southcentral Alaska residents may feel that they’re suffering from sticker shock at escalating natural gas prices but they’re still paying considerably less than consumers in the Lower 48. …
* May 28, 2006, Steady as she goes: Marathon continues to maintain Cook Inlet gas production; Kasilof to come online; Kenai field gas storage starts up. …
Marathon Oil Corp. is continuing to develop new natural gas production from its existing Cook Inlet fields while also exploring for and developing new gas fields. That was the key message from John Barnes. …
* Oct. 1, 2006, Cook Inlet gas crunch: Crisis or deliverability issue - Southcentral Alaska players debate gas future. …
There may or may not be a crisis in the Cook Inlet natural gas market, but there are uncertainties, especially with so much of Southcentral’s energy needs met by natural gas, the …
* Oct. 8, 2006, Southcentral Alaska running out of cheap gas: Utilities already seeing deliverability problems in Cook Inlet; industrial users provide backstop for utility needs in cold weather. … Natural gas powers electric utilities in Southcentral Alaska, provides heat for residential and commercial customers and is the feedstock for Kenai Peninsula industrial plants which make fertilizer and ...
* Jan. 28, 2007, Inlet gas usage sets record: Enstar, Cook Inlet gas producers scrambled to meet peak; new interconnects planned. ...
Cook Inlet uses more natural gas on cold days - and delivering those peak needs is trickier than in the past. Enstar Natural Gas, the Southcentral gas distribution company, set a throughput record Jan. …
* Jan. 28, 2007, Export extension filed: Nikiski plant partners Conoco, Marathon apply to extend LNG license 2 years. …
* Sept. 16, 2007, LNG plant key to stable Cook Inlet market: Supporters say renewing Nikiski facility’s federal export license for two years would be good for economy, industry and state. …
* Sept. 30, 2007, Agrium shutting down: Kenai Peninsula nitrogen facility being mothballed until it gets new gas feedstock. …
* Dec. 2, 2007, Scenario ‘alarming … downright scary’: Kenai Peninsula Borough mayor tells RDC conference attendees Alaska needs energy plan; closing LNG plant not the solution. …
* June 8, 2008, LNG license renewed: Nikiski export terminal gets 2 year extension; DOE says gas supplies adequate. …
* Jan. 18, 2009, Nearing edge of the cliff: How close is Southcentral Alaska to the limits of Cook Inlet gas deliverability?
At a Regulatory Commission of Alaska public meeting on Jan. 10 officials from Alaska Railbelt gas and electricity utilities described how peak demand for natural gas during a recent cold snap had tested …
* Aug. 2, 2009, Rolling blackouts? The day of reckoning may be approaching for CI utility gas deliverability. …
* March 28, 2010, Cook Inlet needs $2.8B: Study assesses investment in new CI wells to maintain adequate Southcentral gas. ...
* April 18, 2010, More time for exports: Kenai LNG owners to ask for another two-year extension to export license….
* Oct. 31, 2010, Utilities have fuel, facilities issues: Southcentral electrics tell chamber natural gas needed, but also major plant, transmission upgrades, total of $13.5 billion by 2025. …
If you thought declining reserves of natural gas in Cook Inlet were the only issue for Southcentral Alaska energy users, you need to hear the area’s major electric utilities talk about the monies. …
* Nov. 14, 2010, Chevron pulls plug: Cook Inlet assets for sale, holding onto North Slope, ANWR leases. …
Chevron said Oct. 12 that it plans to market all Cook Inlet assets owned by Union Oil Company of California and Chevron U.S.A. Inc. …
* March 20, 2011, Keeping all options open: ConocoPhillips plans to preserve Cook Inlet LNG plant for possible future use. …
When ConocoPhillips announced in February that it would close the LNG plant that it operates on Alaska’s Kenai Peninsula, the company said that it would begin mothballing the plant after it offloads its last consignment of LNG, probably in April or May. And at an Anchorage Energy Task Force meeting on March 15 Dan Clark, manager of Cook Inlet assets for ConocoPhillips Alaska, said that the company plans to put the plant into a “preserved condition.”
* Aug. 4, 2011, Kenai LNG facility to run through August. …
Four additional liquefied natural gas cargoes, one to China and three to Japan, will allow the Kenai LNG plant to remain open through early August. ConocoPhillips said April 19. ...
* July 24, 2011, New inlet player: Houston-based, privately held Hilcorp buying Chevron’s Cook Inlet assets. …
The familiar logos long associated with Union Oil Company of California and Chevron will soon be absent from Alaska’s Cook Inlet, replaced by a new logo, that of Houston-based Hilcorp Energy. …
* Oct. 16, 2011, Conoco buys Marathon Oil’s 30% share of Nikiski LNG plant. …
* March 25, 2012, No respite ahead: PRA now projects Cook Inlet natural gas supply shortfall in 2014 or 2015. …
A new flurry of exploration activity in the Cook Inlet basin in recent years and reports of some possible new gas fields on the horizon would seem to bode well for the future of the utility natural gas, but …
* April 15, 2012, Marathon to exit Alaska: Selling its Cook Inlet assets to Hilcorp to focus on oil resources elsewhere. …
Hilcorp, others improve gas picture Although there was still not enough natural gas coming from the Cook Inlet basin to meet the needs of all users by 2014, Hilcorp and smaller companies were improving the situation by squeezing more gas out of mature oil and gas fields, as well as exploring for and finding new reserves.
The following excerpts from the story “Gas exports to restart: DOE issues new export license for ConocoPhillips Kenai Peninsula LNG facility” best explains the Cook Inlet gas situation at this point in time:
The U.S. Department of Energy has authorized the renewal of a license for the export of liquefied natural gas from ConocoPhillips’ LNG facility at Nikiski on the Kenai Peninsula to countries that do not have free-trade agreements with the Unites States, ConocoPhillips said April 14.
In February the agency issued a similar license for the export of LNG to countries that do have U.S. free-trade agreements.
Both licenses run for a period of two years and, individually or in combination, allow for the export of up to 40 billion cubic feet per day of gas. ...
Given the recent debate about potential shortages of Southcentral utility gas from the Cook Inlet basin, it may appear counter-intuitive to see the authorization of gas exports from the basin. Indeed, in early 2013 ConocoPhillips, citing uncertainty in the local gas market, mothballed the Nikiski LNG plant when a previous export license expired. But with companies such as Hilcorp Alaska and Cook Inlet Energy revitalizing Cook Inlet gas production, and with multiple companies exploring in the basin and bringing new gas fields on line, the gas supply situation has changed dramatically in recent years. The Southcentral Alaska gas and power utilities have now all secured contracts to fully meet their gas supply needs through to the first quarter of 2018. And, with Hilcorp having furnished the bulk of those contracts, other companies have been expressing concern about finding markets for new gas, should gas exploration prove fruitful. ...
ConocoPhillips pauses LNG exports Two years later in early 2016 ConocoPhillips paused exports from the Kenai LNG plant, although the facility continued to produce some LNG, during the second half of the year sending eight tanker truckloads to Fairbanks Natural Gas LLC facilities.
In November 2016, the company sold its legacy offshore North Cook Inlet gas field and the Tyonek platform to Hilcorp, and put the LNG plant up for sale, just three years shy of its 50th birthday.
In December, ConocoPhillips sold most of the rest of its Cook Inlet fields and related assets in separate transactions to Hilcorp, including (but not restricted to) the North Trading Bay and Nicolai Creek units.
Unsuccessful in finding a buyer for the Kenai LNG plant, ConocoPhillips mothballed it in mid-2017.
In early 2018, ConocoPhillips sold the plant to Andeavor, formerly called Tesoro Corp., and the long-time operator of the nearby Nikiski oil refinery. The sale price was an (unconfirmed) $10 million versus its Kenai Peninsula Borough assessed value of $55 million.
Marathon-Andeavor merge In 2018, Marathon once again became a big player in the Cook Inlet basin when it merged in a takeover with Andeavor, a deal that closed later that year.
The merger gave Marathon ownership and operatorship of both that the Kenai LNG plant complex, which includes a dock and loading facility, or terminal, and the nearby Kenai oil refinery.
In the April 30, 2018, deal, Marathon agreed to buy rival Andeavor for $23.3 billion, creating the largest independent fuel maker in the United States, with an initial enterprise value greater than $90 billion.
Although Alaska is a minor player in the merged entity’s portfolio of refining assets, both the LNG plant and the oil refinery have something deemed important in the Marathon-Andeavor merger presentation - export port access.
On Jan. 31, 2019, Andeavor spokesman Scott LaBelle told Petroleum News in an email, “This acquisition further strengthens our integrated value chain by optimizing our operations in Kenai and providing low-cost fuel for our (oil) refinery to produce the fuels that consumers in Alaska need to keep their lives moving.”
The Kenai LNG plant was the last of ConocoPhillips’ Cook Inlet assets to be sold, as the company had long been focusing on its North Slope oil fields and exploration prospects.
Exporting LNG has not resumed under Andeavor.
Another look at gas supplies In response to a commission by Enstar Natural Gas Co., Petrotechnical Resources of Alaska updated its 2012 assessment of Cook Inlet gas demand and supply. (See “PRA Cook Inlet gas forecast indicates more development needed” in May 20, 2018, issue of Petroleum News.)
The revised assessment indicated that at current rates of gas well drilling, gas supplies would start to fall short of demand in 2021.
Of course, none of the production was allocated for the Kenai LNG plant or the fertilizer plant, which currently belongs to Nutrien. (See Petroleum News story, “Nutrien continues to work on re-starting Alaska fertilizer plant” in the June 9 edition.)
Kenai LNG Cool Down Project Trans-Foreland Pipeline Co., a wholly owned arm of Marathon via the acquisition of Andeavor, formerly Tesoro, by Marathon, filed in April with the Federal Energy Regulatory Commission for authorization to construct, install, own and operate modifications to the Kenai LNG plant, under Section 3 of the Natural Gas Act.
The company applied to make facility modifications to “bring parts of the Kenai LNG plant out of current warm idle status by importing LNG and using the LNG to cool existing LNG storage tanks and associated LNG facilities,” as well as minor modifications to prevent environmental and economic waste from boil-off gas.
The work would involve installation of a new 1,000 horsepower electric-driven boil-off-gas booster compressor unit and related equipment with the goal of importing LNG so that the Kenai plant could provide up to 7 million standard cubic feet per day of natural gas to Marathon/Trans-Foreland’s affiliated Kenai Refinery.
The modifications are collectively referred to as the “Kenai LNG Cool Down Project.”
FERC has set the schedule for environmental review of the project, with the environmental assessment to be released Dec. 13 and the 90-day federal authorization decision deadline March 12, 2020.
Will LNG exports ever again take place from the Kenai LNG plant? It largely depends on gas supply and that is an unknown, although Hilcorp and a couple other companies are exploring for additional reserves.
And there is still talk of bringing North Slope natural gas via a pipeline to Kenai, but that will depend on economics, which has always been an obstacle for natural stranded so far from markets.
Stay tuned. ...
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