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Complexity, competition issues for LNG ExxonMobil, TransCanada, cite challenges of project to take Alaska North Slope natural gas to tidewater, ship LNG to Asian markets Kristen Nelson Petroleum News
A project to move Alaska North Slope natural gas to the Far East as liquefied natural gas, LNG, is complex and challenging, officials with TransCanada and ExxonMobil told the Resource Development Council’s annual conference Nov. 14 in Anchorage.
Tony Palmer, vice president Alaska development with TransCanada, and Randy Broiles, vice president Americas, ExxonMobil Production Co., both stressed the need for the state and Alaskans to be on board if the project is to succeed.
Palmer said a social license from Alaskans will be required to move the project forward.
It used to be, he said, that to move a large pipeline or LNG project forward you needed licenses from the U.S. Federal Energy Regulatory Commission or the National Energy Board in Canada. Once you had those licenses, he said, “you could go ahead and advance your project ... and you could count on it getting constructed.”
Those licenses are no longer all that’s needed, he said: Today, such a project requires a social license.
Alaskans will have to decide if they are ready to support the project, if they believe they have the right coalition of companies, if they believe it is the right time to move Alaska gas to market and if the state is ready to compete in the world marketplace, Palmer said.
“We think that Alaskans are ready to advance the project into the marketplace and compete,” he said, and TransCanada believes the state has the right coalition of companies.
Producers, state, pipeline Palmer, who has represented the company in Alaska for many years, has long said TransCanada believes it will take all the producers, TransCanada and the state combined to move a North Slope natural gas project forward.
TransCanada received the state’s Alaska Gasline Inducement Act license in 2008 and aligned with ExxonMobil in 2009 to form the Alaska Pipeline Project, which was focused on a pipeline into Alberta to take North Slope natural gas to the Lower 48. But a binding open season for that project, held in 2010, did not result in any contractual agreements.
As shale gas production in the Lower 48 changed the U.S. natural gas market, the possibility of an Alaska natural gas pipeline taking gas into the Lower 48 seemed slim.
In the fall of 2011, Alaska Gov. Sean Parnell challenged the producers to focus on LNG. And in early 2012, BP and ConocoPhillips joined ExxonMobil and TransCanada to evaluate an LNG project.
Palmer noted that an LNG project, which the companies have pegged at $45-$65 billion, “is a very highly complex undertaking. Much more complicated than a simple pipeline from Prudhoe Bay to Alberta.”
An LNG project “will take time and of course Alaskan gas will now not just be competing with gas on this continent, it will be competing with gas from across the world.”
A number of experienced players are already advancing projects, most of which “will be in service later this decade because they’re under construction now or have passed their final investment decision,” he said. “And of course there are a number of new players that also look to advance into the marketplace.
“They have their own challenges just as Alaska gas does, but I can assure you they are working hard, just as we are, to bring that gas to market.”
Palmer said TransCanada is focused on the midstream side of the project, a large diameter line, in the range of 42 to 48 inches in diameter, which would move 3 billion to 3.5 billion cubic feet of gas a day.
Companies for Alaska Palmer said that some people have questioned whether the state should be dealing with companies not solely focused on Alaska.
TransCanada, he said, “is not simply looking at the Alaska project.”
The company “is in the business each and every day advancing natural gas pipelines in North America,” he said, projects that require regulatory approval and support from stakeholders and that have to be constructed on schedule and on budget.
“I’d suggest that both in the production area and certainly in the marketing of your LNG as well as the pipelines, I think experienced corporations that do that each and every day in the marketplace is a real advantage to Alaska.”
Both TransCanada and the producers are very active in the marketplace. “We think that’s a huge advantage as you move forward on this project,” Palmer said.
Recent advances ExxonMobil’s Broiles said that moving forward with such a world-scale LNG project will require commitment from the producers, TransCanada, contractors, the State of Alaska, legislators, business leaders and opinion leaders.
There have been advances, he said, noting the settlement reached with the State of Alaska on the Point Thomson project in March, and the meeting of CEOs of BP, ConocoPhillips and ExxonMobil with the governor to discuss prospects for marketing Alaska’s gas, which “resulted in the start of concept selection work on an Alaskan LNG project,” work which also includes TransCanada.
A record of decision from the U.S. Army Corps of Engineers for Point Thomson in late October allows that project to go forward and the Point Thomson project “is now ready to become what we hope is the first step to commercialize Alaska’s significant natural gas resources, truly an anchor field for the LNG project,” Broiles said.
Team assembled “We’ve assembled a world-class team to do our part,” he said, adding that the collaborative effort between ExxonMobil, ConocoPhillips, BP, TransCanada and the state “provides the best opportunity to develop Alaska’s vast but technically challenging natural gas resource.”
Work over the last 10 months “covers the LNG value chain from production and gas treatment through an 800-mile pipeline, to liquefaction, storage, loading facilities and finally shipping,” Broiles said.
Each of those components “would be world-class and in combination they represent a challenge that’s almost impossible to visualize,” he said.
He noted the estimated cost of the LNG project, at $45-65 billion, compared to the actual cost of the trans-Alaska oil pipeline project at $8 billion, in 1977 dollars, and said the LNG project is “an unprecedented challenge,” but a challenge “justified by the size of the prize.”
There would be thousands of local jobs during construction, Broiles said, significant long-term employment, economic development across the state and “decades of affordable, domestically produced natural gas for Alaska’s homes and businesses along the Railbelt and certainly in Southcentral Alaska.”
And there would be revenue streams both from natural gas and from the boost the project would provide to North Slope oil exploration and production.
Window of opportunity Alaska is “conveniently situated” for Asian markets, which are currently consuming most of the world’s LNG, but, Broiles cautioned, “This window of opportunity may not remain open forever. All around the world there are many new LNG sources of supply coming on and they’re under development or being planned.”
An Alaska LNG project would be competing with LNG projects in the Middle East, East Africa, North America and Australia, he said, many of which have a head start.
“If there’s one thing that you might take away from my remarks today on LNG it’s this: The development of a world-class LNG project in Alaska faces real competition in terms of both capital allocation and securing customers.”
Project challenges Broiles said the alignment and commitment of the producers and TransCanada is “vital to the project’s success.”
But, he cautioned, the project will “be both expensive and technically challenging and to support such a capital intensive project it’s essential that it be built upon a stable and competitive fiscal regime, for both oil and gas.”
With an investment of $45-$65 billion, “I can’t over stress that stability in fiscal regime is fundamental.”
“Investors simply need certainty in how we’ll benefit from the investment risk that we’re taking.”
Broiles said Alaska’s fiscal regime “is not competitive on a global basis.”
Where there are favorable tax regimes, “investments follow, jobs follow,” he said.
“A stable competitive fiscal regime drives investment which drives production, the jobs, the growth and of course tax and royalty revenues.”
Broiles said the issue has been discussed many times, “but to date no progress. We believe the time has come to work together to develop a fiscal regime that enables the billions of dollars to be invested. The size of the prize for all of us demands that a mutually beneficial solution is reached.”
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