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Partners: Work needed before FEED decision Producers said in February AKLNG could stay in pre-FEED pending better economics, or state could take over, push on to FEED decision KRISTEN NELSON Petroleum News
How we got to a state-led Alaska liquefied natural gas project and whether the North Slope producers support that plan were topics of interest to the joint House and Senate Resources committees Aug. 25, the second day of a two-day AKLNG hearing (see earlier stories on the hearings in the Aug. 28 and Sept. 4 issues of Petroleum News).
The state’s producer partners in AKLNG - BP, ConocoPhillips, ExxonMobil - discussed work needed to progress the project, but said they did not oppose the state taking over work on the project.
Bill McMahon, senior commercial advisor with ExxonMobil, led off the company presentations, reminding legislators that the misalignment between the state and AGDC and BP, ConocoPhillips and ExxonMobil had been discussed at a June 29 AKLNG update.
He noted that the administration had been pressing to have certain agreements in place by the end of the 2016 legislative session. But the agreements the administration wanted, McMahon said, did not include a fiscal agreement, which, he said, is necessary for the project to move from pre-FEED, preliminary-front end engineering and design, into the FEED stage.
FEED will be a vastly more expensive step in the stage-gated project process.
The state and its North Slope producer parties have been working toward a project to take North Slope natural gas to market as LNG, based on ownership of the resource, with the state planning to take its production tax as gas, as well as royalties, bringing its equity share in the project to 25 percent.
The pre-FEED stage is scheduled to be complete this year and the goal was to go to a FEED decision in 2017.
The choices McMahon said that when it became clear that the agreements the governor wanted would not be in place by the end of the 2016 regular legislative session, two concepts were presented for advancing the project.
The project could transition to a state-led project so that the Alaska Gasline Development Corp., the state’s gas project company, could continue with the goal of entering FEED in 2017.
The alternative, McMahon said, was to change the pace of the project to match current market conditions, continue to advance regulatory approvals, reduce project costs and work on fiscal and commercial agreements - all of which would provide the information necessary for a FEED decision.
“Now at this point I want to set the record straight on some things that have been said,” McMahon told legislators. “At no time has ExxonMobil said that the Alaska LNG project should stop or that it should be put on the shelf.”
He said that “despite these repeated mischaracterizations, and now that the Walker administration has decided to pursue a state LNG project,” ExxonMobil is actively engaged in developing a plan to bridge from the four-party pre-FEED joint venture agreement to a state-led LNG project.
McMahon said key components of a bridging plan include completion of pre-FEED deliverables and filing remaining draft resource reports with the Federal Energy Regulatory Commission; selecting a target date to turn the project over to AGDC; effectively handling progression of FERC NEPA (National Environmental Policy Act) process to AGDC; supporting access to pre-FEED data and information for a state LNG project; and selling the Alaska LNG Project LLC to AGDC so it will have access to LNG plant land, the Department of Energy LNG export authorization and the AKLNG website and logo.
McMahon said that once a state LNG project is up and running ExxonMobil will still have a major role in the development of North Slope natural gas. He said ExxonMobil has always been will be make its gas available to a project under “mutually agreed and commercially reasonable terms.”
ConocoPhillips, BP ConocoPhillips has been saying for some time that it was unlikely to participate in FEED in 2017. Darren Meznarich, project integration manager for ConocoPhillips for Alaska North Slope gas, said his company remains in support of completing pre-FEED work, but is unlikely at this point to agree to participate in FEED in 2017 due to economic headwinds. ConocoPhillips is, he said, willing to participate in a transition to a state-led project, but said the company still has many questions on the concepts proposed by the state and the Alaska Gasline Development Corp., the state’s entity for ANS gas development. Meznarich also said ConocoPhillips continues to be willing to make its gas available on mutually agreeable and commercially reasonable terms.
Dave Van Tuyl, resource manager for BP in Alaska, said BP continues to believe that Alaska North Slope gas presents a tremendous opportunity - something the company has believed since the 1970s, he said. (See details of BP’s comments in Sept. 4 Petroleum News story on the Aug. 25 hearing.)
Van Tuyl said BP supports the state-led project structure and is discussing with AGDC and internally what form BP’s support might take.
The governor’s take In an Aug. 25 press release Gov. Bill Walker noted the findings of a Wood Mackenzie report that “the traditional model of a producer owned and financed gasline is not likely appropriate given today’s market environment,” but said he was pleased to note there is a strong potential for an economically viable project “by exploring some of the alternate project structures currently being investigated by AGDC,” such as third party investors and project financing.
“Now is not the time to shelve that excellent work and start over at a future date,” he said, citing the more than $500 million and several years the project team has spent on engineering, permitting and other work necessary to complete pre-FEED, and calling for “a collaborative cooperative spirit by all decision-makers and stakeholders to adapt to changing conditions and work together to determine if there is a viable path forward.”
Walker said there is a “critical misconception” that the project will move ahead under any circumstances “financed by the permanent fund.”
He said that will not happen. Financing, if the project is economically viable, will be “by long term purchase contracts secured before the first piece of pipe is laid, not by the permanent fund. This is how projects around the world are financed and Alaska’s will be no exception,” Walker said.
Walker told the Alaska Dispatch News in an interview published in early September that the state will know within a year whether potential buyers and investors will support the project, and if the interest is not there, the state will back off.
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