Providing coverage of Alaska and northern Canada's oil and gas industry
April 2017

Vol. 22, No. 17 Week of April 23, 2017

AGDC submits Section 3 application to FERC

Board approves filing; public awareness campaign to begin; negotiations underway for plant site purchase option from AKLNG LLC

Kristen Nelson

Petroleum News

The Alaska Gasline Development Corp. filed an application with the Federal Energy Regulatory Commission April 17 to obtain a Natural Gas Act Section 3 permit for its Alaska liquefied natural gas product.

AGDC, a public corporation of the state, took over advancing a North Slope natural gas pipeline and LNG export project from a partnership of the state and the North Slope’s major producers - BP, ConocoPhillips and ExxonMobil - at the end of the year.

AGDC President Keith Meyer told the Alaska House Resources Committee April 14 that AGDC’s board had approved the application filing at an April 13 meeting. The filing triggers a National Environmental Protection Act review process. He said FERC permitting should take about 18 months.

That is to get to a final EIS. AGDC said the draft environmental impact statement under NEPA would likely take about 12 months, with another six months required for the final EIS. AGDC said it also filed major federal permit applications with the Pipeline and Hazardous Materials Safety Administration, the Army Corps of Engineers, the Bureau of Land Management and the National Marine Fisheries Service.

Activities underway

Meyer told legislators the majority of questions received by AGDC on the Alaska LNG project have been addressed with answers submitted as part of the application filing or to be filed during the application review process.

Activities underway include interviewing engineering, procurement, construction firms to assist with regulatory application and provide capital cost estimates input, Meyer said. The final investment decision for the project would take place after receipt of FERC authorization for the project, expected in the first quarter of 2019.

AGDC is finalizing negotiations with AKLNG LLC for a purchase option for the land at the plant site, which needs to be under AGDC control by the end of the FERC process. Meyer said AGDC technically doesn’t need title to the land, but is required to either own or control it, and said AGDC is looking at having the option to buy the land.

Financial update

Lieza Wilcox, AGDC vice president, commercial and economics, told legislators there is a market opportunity for Alaska LNG across Asia, and said existing contracts expire in the same timeframe as a projected global shortfall in LNG supply. A contracted supply gap is expected in the Asian market within seven years.

She said the Alaska LNG project is a $40 billion project, and a proposed capital structure of 25 percent equity and 75 percent non-recourse debt is envisioned, with an opportunity to earn 8 percent on the $10 billion of equity investment through the initial period.

Discussing investor economics, she said that for a 20-year firm contract period there would be an acceptable return on investment and delivery of some 25 trillion cubic feet of natural gas.

Debt would be paid off during the contract period, and beyond that an additional 30 tcf of natural gas would be needed to operate for an additional 25 years. The asset value at 2045, she said, could be $50 billion.

The state would have an opportunity to invest and could earn 8 percent through the initial period, going to 13 percent with inclusion of its royalty in kind and tax as gas and payment in lieu of taxes. Meyer said the assumption for PILT, payment in lieu of taxes to municipalities, is $500 million a year.

Wilcox discussed a potential to reduce the capital cost by phasing the project, first building a two-train system, expandable to three trains. That, she said, would reduce the exposure to investors.

Contingency and owners costs (including engineering and project management) are being benchmarked and further reviewed and Wilcox said there is early indication of potential for cost reduction.

AGDC is positioned to bring the pieces of the project together, with the state a potential investor along with Alaskans, strategic and institutional investors, the producers and EPC contractors. AGDC, acting as developer, would pull together risk allocation, a range of investors, a focus on the Asia market and best-in-class project management using EPC firms to manage construction risk.

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