AGDC focused on FERC, cost reduction

Final EIS for FERC permit scheduled for March, final FERC decision for June; Fluor contracted in fall to work on new cost estimate

Kristen Nelson

Petroleum News

Joe Dubler, interim president of the Alaska Gasline Development Corp., updated House Resources Jan. 22 on the Alaska LNG Project.

Dubler returned to AGDC as interim president in January 2019 after board membership changes under the Dunleavy administration resulted in the ouster of Keith Meyer as president.

AGDC then returned to a stage-gate process for the Alaska Liquefied Natural Gas Project, AKLNG, and focused activities on obtaining authorization to construct from the Federal Energy Regulatory Commission. AGDC also focused on reviewing costs and updating the economic analysis and on soliciting private sector firms to build, own and operate the project.

Dubler told the committee that when pre-FEED, front-end engineering and design, was completed in 2016, the economics were not attractive. The producers stepped back and the state, through AGDC, continued working the project.

He said when he came back it was with the promise to look at project economics and complete the FERC regulatory process.

If economics have improved enough for the project to move forward, AGDC would be looking for third parties to invest, loan money, build and operate the project - really three megaprojects: the gas treatment plant on the North Slope, the pipeline and the liquefaction facility at Nikiski.

It’s not something the state is going to take on. The governor is adamant on that, Dubler said.

As for AGDC’s role should the project go forward, Dubler said AGDC would not be the project sponsor, but would represent the state’s interest in the project.

Future FERC milestones for the project include publication of availability of the final environmental impact statement March 6 and issuance of a final FERC order June 4.

Project costs

Asked about the original cost estimate, Frank Richards, AGDC senior vice president, program management, talked about some of the industry changes since the original estimate. He said the 2019 review of costs reflects the increasing use of modularization in large project construction, allowing a significant decrease in costs by constructing elsewhere and putting facilities together on site.

The gas treatment plant was always a modular design, Richards said, because that is how North Slope construction is done.

But the LNG facility was originally designed with less modularization - more modularization there, in line with current industry practice, would reduce costs.

He also said the project management team assembled by ExxonMobil for the JVA was “quite top heavy” so there was discussion around ways to reduce that cost.

Dubler said AGDC personnel met with senior engineers and project management professionals from BP and ExxonMobil last spring. It was a workshop to review original cost estimates and he said the feeling was that with changes in the industry costs could be reduced significantly from the original estimate.

Fluor is working on a cost update to the fourth quarter of 2019, Dubler said, with 10 major tasks, including modularization and sourcing of supplies. AGDC contracted with Fluor in the fall to evaluate the cost reduction opportunities and update the Class 4 cost estimates to fourth quarter 2019 dollars. The updated Class 4 cost estimate would be provided as input into a common economic model developed with input from BP, ExxonMobil, the Department of Revenue and an investment bank.

Dubler said Fluor will be looking at all cost elements with AGDC expecting a big component of reductions to come from the contingency, because when hard costs go down, contingency goes down as well.

-KRISTEN NELSON