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Yukon Pacific estimate reduces LNG project cost by almost $4 billion New “from scratch” numbers replace those updated from 1980s figures; new estimate based on permits, engineering, latest technology Kristen Nelson PNA News Editor
The costs for a 14 million ton liquefied natural gas project with a conditioning plant, a pipeline from the North Slope to Valdez and liquefaction facilities and ships has been pegged at $15 billion.
The latest figures from Yukon Pacific Corp., however, from a construction estimate the company ordered last year, show $10.42 billion for a mid-sized liquefied natural gas project (production from 13.5 million metric tons up to 18 million metric tons) and $8.16 billion for a smaller, Phase I project (production from 9 million metric tons to 13 million metric tons).
The old numbers, Yukon Pacific Vice President Wayne Lewis told PNA April 7, were based on a study done in the 1980s for Alaska Asian Gas Systems and updated over the years.
Jeff Lowenfels, president of Yukon Pacific, said the new numbers are based on all of the engineering and permitting work which Yukon Pacific has done since the 1980s on the project, which includes a conditioning plant on the North Slope, a gas pipeline to Valdez, the LNG plant at Anderson Bay and LNG ships.
Lowenfels and Lewis said that these numbers don’t prove the project economic — that determination requires feeding into the equation what the gas owners charge and the landed price for LNG in the Far East.
The 9 million metric ton Phase I, Lewis said, covers a range of production from 9 million metric tons of LNG to 13 million. At 13.5 million, he said, some portions of the project need to be expanded, but not the pipeline. What you add are additional LNG trains at Anderson Bay and additional ships and other facility upgrades to make the system capable of producing and delivering the additional amount, he said. The first expansion covers production up to 18 million tons, and then, once again, you have to add facilities.
The Anderson Bay LNG plant, for instance, starts in Phase I with two LNG trains; the first expansion adds a third LNG train; the second expansion adds a fourth. At 9 million metric tons you start with nine ships; the first expansion adds four more ships; the second expansion another four. Facility expansions are also required at the conditioning plant end of the project on the North Slope.
New numbers from major builders The new numbers, Lewis said, were prepared by Willbros, the former Williams Brothers Engineering, by Michael Baker Jr. and by Kellogg. Kellogg, which has done a lot of LNG plants, did refinements on the costing for the LNG plant at Anderson Bay, he said, while Willbros did most of the work on the pipeline and compressors and the LNG plant and marine terminal.
The estimates included for LNG tankers ($200 million each) are “off the shelf” prices, Lewis said. “It doesn’t make any difference. A ship is a ship. So there’s nothing exotic about those.” Figures for a North Slope gas conditioning plant (plus $1 billion) were also estimated by Yukon Pacific, Lewis said, because similar facilities have been ordered fairly recently, so “you don’t need to go out and price that.”
But for the pipeline, compressors, LNG plant and marine terminal, Lewis said, about a year was spent — basically over 1999 — preparing those estimates, using information which Yukon Pacific provided from its engineering and permits.
The resulting numbers, Lewis said, are not yet investment grade, but are not far from it.
Cost estimates based on actual work Lowenfels emphasized that these new cost estimates are based on 10 years of design work and on the permits that Yukon Pacific has acquired.
“Nobody else can do this,” he said. “Nobody. Nobody can do that except for a project that’s been permitted and has 10 years worth of engineering.”
Lowenfels said that the cost estimates are “extremely accurate numbers.
“I don’t want to say they’re right at investment-grade quality, but they’re very, very close to investment-grade quality.”
At this point in time, Lowenfels said, it would be normal to have numbers at plus or minus 25 percent. These numbers are “probably even better than plus or minus 15 percent,” he said.
“The number we were using before was a number based on a study,” Lowenfels said. “This is a number based upon a real project that’s permitted.”
Project combinations questionable In March 23 testimony before the House Special Committee on Oil and Gas, Lowenfels said that Yukon Pacific thought the port authority had a great concept and said Yukon Pacific was continuing to talk with them.
He also said that Yukon Pacific has a verbal agreement with Foothills to provide gas for a Lower 48 gasline as far south as Delta.
But, Lowenfels said, “conversations with many people in the industry, my reading in the testimony before your body, lead me to believe that unless you have sustained prices of over $3, there will not be a project to the Lower 48 states.” He said that it was his opinion, based on following gas projects for 25 years, and based on opinions from others in the industry that a $3 price in the Lower 48 is not sustainable because there would be infill drilling which would increase supply and bring the price down.
Lowenfels said he thought it would “be a dangerous thing to say, okay, you’ve got two different projects, let’s meld them together.
“Because,” he said, “the economics of one may not be there and you’d damage the other by doing that.”
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