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Alaska gas: Taking up the slack Gas authority instructs Heinze to pursue LNG sale with Sempra Kristen Nelson Petroleum News Editor-in-Chief
Sempra Energy is interested in buying Alaska LNG for its proposed Baja California regasification facility, and the Alaska Natural Gas Development Authority board, meeting July 28 in Anchorage, authorized CEO Harold Heinze to negotiate what Heinze called a “mutual option” agreement between the authority and Sempra.
Sempra Energy is a San Diego, Calif.-based company with both regulated utilities (Southern California Gas, San Diego Gas & Electric) and non-regulated business (Sempra Energy Resources, Sempra Energy Trading), and is one of several companies proposing LNG receiving facilities in Baja California.
Heinze asked for, and got, board agreement to proceed with negotiations with Sempra “to see if we can establish an ongoing business relationship.” Heize said he had already signed a confidentiality agreement with Sempra because he didn’t see how the discussions could move forward without it.
As for where the authority — and Alaska liquefied natural gas — fits in with a natural gas pipeline to the Lower 48, Heinze told the board: “if somebody’s going to spend 20 or 30 billion dollars to do something that’s good for me, I want to encourage them to do that. … I don’t want to do anything to screw that up.”
Heinze said he believes that if the proposed Alaska Highway gas pipeline project goes ahead, the producers “are going to be consumed by that task of going from the North Slope to Chicago. They are not going to be looking around Alaska at the variety of opportunities and other things that might be done.”
That, he told the board, is where the authority fits in. “I think we should be prepared to take up any slack.”
The authority also has “to provide fallback” if a pipeline project to the Lower 48 doesn’t go ahead, he said, and needs to “have an Alaskan content project that can push ahead” with a minimum amount of delay. LNG to Baja Heinze said Sempra wants to build a regasification plant to feed their own market. They are one of the few companies looking at regasification which “actually has a consumer side to them, as opposed to a supply side. Everybody else seems to be pretty well in the supply business and they’re looking at regasification as a way to capture market.” Sempra, he said, “has got the market and it’s in search of supply.”
That’s what led Sempra to talk to Alaska. They are talking to a number of potential suppliers, Heinze said, but have “indicated a willingness to work” with the authority and to discuss using Alaska LNG.
Everybody else talking about Baja California projects is “already in the supply business,” he said, and doesn’t need Alaska LNG.
Heinze said he also likes the fact that Sempra has markets both in California and Northern Mexico, providing opportunities both north and south of the border. There is no LNG currently coming into that area, and it is unclear how the market is going to be structured, he said. “I think they are the kind of people we would want to deal with in terms of developing that market, as opposed to competing producers … or competing sellers. These are the people that I think we can develop a real true arms-length market with.”
Talking to Sempra will increase the authority’s credibility and would get it started dealing with the market. Even though Sempra wouldn’t take all of Alaska’s gas, it would be a good market, Heinze said.
Board told it should move now Attorney Bill Walker, who has been working Alaska gas development on behalf of the Port Authority, said he has met with Sempra, and in his first conversations with the company Sempra had to check to see if they weren’t too far down the line negotiating with others to respond to Alaska.
Walker told the board that Sempra is anxious to move to the top of the list of Baja projects by tying up the needed supply, initially 1 billion cubic feet a day, expandable to 2 bcf.
Walker said he was anxious to see Alaska strike a deal with Sempra, because once one of the Baja projects gets both permitting and an LNG supply (none of them have that now), “at that point the other competing projects go away.” Walker said there are two offers on the table to Sempra now to buy its capacity, and once that capacity is sold, Alaska will have to “wait in line until those fields are in decline” to sell its gas into Baja.
Board member David Cuddy, who has also talked with Sempra, said what the company is talking to Alaska about is buying the capacity at the proposed Baja facility, “and that then goes to the question of having to buy gas on the spot market to resell to Sempra” until Alaska LNG is available, he said.
Cuddy said one thing the board would need to understand would be “the risk factors to us if we tie up that capacity.” Possible downside Heinze also reviewed for the board some possible downsides to pursuing discussions with Sempra.
There are gasline discussions in Congress, and “there are people that are not anxious for Alaska gas to enter the marketplace and they seize upon any opportunity to confuse the scene as far as the discussions going on in the United States Congress.” In pursuing discussions with Sempra, the state would have to be very clear that it really does want a gasline to the Lower 48 while also exploring taking LNG into Baja, that the state is not being “schizophrenic in this case.”
The authority probably also needs to walk carefully around the stranded gas negotiations, Heinze said. “I don’t know if this is going to bother the producers or not… but I think we need to be careful about that.”
His third concern is that the authority would be going to market with a “minimally defined” Alaska project.
Heinze said he thought the risks “are manageable in this case” and asked for the power to negotiate a “mutual option” agreement.
The board agreed and told Heinze to talk to Sempra.
Heinze said that if there was a deal negotiated he could discuss it with the board in executive session before the board made a decision in public.
Editor’s note: see part 2 in Aug. 10 issue of Petroleum News.
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