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Pros, cons of Alaska North Slope LNG ExxonMobil execs review liquefied natural gas market, potential for Alaska, latest work on large-diameter line to Southcentral Kristen Nelson Petroleum News
Alaska has advantages and disadvantages when it comes to a liquefied natural gas project, but there is potential for LNG from the state to go to Asia Pacific markets.
That was the message Richard Guerrant, vice president, LNG, ExxonMobil Gas and Power Managing Co., delivered to the Resource Development Council’s annual conference Nov. 21 in Anchorage.
Guerrant began by highlighting differences between crude oil and LNG marketing and handling, including a vastly larger market for crude oil (some 4,000 oil tankers vs. 360 LNG carriers, with thousands of crude oil terminals compared to 87 LNG terminals); transportation costs for LNG four times that of crude oil; significant liquidity in oil markets compared to LNG, with regional supply and demand driving LNG prices compared to a global commodity market in oil; and a requirement for an LNG market to justify investment costs before development occurs.
The market for LNG is expected to grow about 5 percent a year through 2040, Guerrant said, from some 30 billion cubic feet a day in 2010 (200 metric tons a year) to approaching 90 bcf a day in 2040 (more than 600 metric tons per year), contrasting with a 1.5 percent annual growth overall for energy.
The estimated need in 2025 will be 200 million tons in additional suppliers, which is where Alaska has opportunities, he said.
There are challenges But, Guerrant said, there will be competition for markets and for investor dollars in that 2020-30 period, with Wood Mackenzie listing 60 LNG projects under consideration, providing more than two units of supply for each unit of demand.
With that competition, only the most viable will proceed, he said.
Challenges for the Alaska project include commercial issues compared to the competition. The average construction time (final investment decision to project startup) is an average of four years compared to five to six years for Alaska, Guerrant said.
In addition to that longer construction timeframe, the Alaska project has the technical challenges of its remote Arctic environment and the risk that issues with obtaining U.S. permits could extend the time it takes for the project.
The commercial issue here, Guerrant said, is that the Alaska project requires customers to commit earlier than many competing projects. Financing for the project, likely to be the largest private sector project ever financed, is dependent on customer commitment.
Alaska advantages The Alaska project also has advantages, Guerrant said, including its proximity to Asian-Pacific markets, the known gas resource and growth potential, Alaska’s experience as a natural resource player and the experienced partners involved in the project.
But agreement on durable fiscal terms is required for the project to move forward, he said, as well as development of stable policies and regulations supporting the commercial and financial obligations required for the project.
Fiscal terms are key for an Alaska project to make the risk of the longer-term contract required before delivery worthwhile to investors, Guerrant said.
He said this was the time for government and producers to come together and work to ensure the Alaska LNG project has a place in the global market.
Integrated team significant ExxonMobil’s Steve Butt, project manager for the Alaska LNG project, said a significant difference in the LNG project, compared to earlier efforts, is that earlier projects didn’t have all the skills working together.
With the integrated team (BP, ConocoPhillips, ExxonMobil and TransCanada) we can understand the system, Butt said.
He reviewed project accomplishments, including agreement on a design concept in February and field studies this summer, and said the goal of the design and engineering work is to reduce project uncertainty — and to keep ramping up the engineering work, further reducing uncertainty.
The proponents have cited a project cost of $45 billion to $65 billion.
Butt said the goal is to get to $45 billion because given reliability, low cost wins when projects compete.
More field work Field work this past summer saw 150 people gathering data required for permits, Butt said. In the summer of 2014, 300 people will be out in the field — and for a longer season, he said, with triple the work projected.
Engineering work continues, with a focus on licenses and permits, he said.
But, he warned, no one else is putting in a project this big in the U.S. and durable gas fiscal terms are needed so there is understanding of the commitment being made for 30 years by the builders, buyers and financiers, Butt said.
Natural gas at Prudhoe Bay is 12 percent carbon dioxide, CO2, Butt said. That’s a big deal, he said, and it’s always been the Achilles heel of the project.
The CO2 will be separated from the gas and reinjected. It has no value to the LNG project, Butt said, but does have value when put back into the ground.
Butt said the integration of Prudhoe Bay — prior to the acquisition of ARCO’s Alaska assets by Phillips Petroleum (now ConocoPhillips) in 2000, ARCO operated one side of the field, BP the other — is a huge plus for the gas project because accessing gas can be understood in an integrated fashion for the first time.
Another challenge is keeping the gas cold as it is moved from the North Slope south. North of the Brooks Range there is continuous permafrost, which becomes discontinuous south to the Alaska Range. To keep the gas cold eight compressor stations, one about every 80 to 90 miles, will re-cool and re-pressurize the gas.
An Alaska LNG plant has some advantages, Butt said, because the compressors operate more efficiently at cold temperatures. It will be about 15 percent more efficient in Alaska than in Qatar, he said.
The liquefaction facility will include tanks, a jetty and two berths, with a ship expected about every two days.
Overall project construction will be modular, Butt said, noting that some of the first modules ever built were for Prudhoe Bay in the 1970s, so the LNG project would make use of a technique piloted in Alaska.
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