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January 2020

Vol. 25, No.03 Week of January 19, 2020

Arctic opportunities

$1 trillion global investment needed for Arctic projects, says CEO of Qilak LNG

Steve Sutherlin

Petroleum News

The Arctic will need significant outside capital to reach its vast potential, Mead Treadwell, CEO, Qilak LNG said in remarks to the Arctic Ambitions conference in Anchorage Jan. 9.

“When analysts have looked at what is the investment potential in the Arctic, you take the number of projects that are credibly on the drawing board someplace in the North, and it adds up to about a trillion dollars,” Treadwell said. “There’s 4 million of us who live in the Arctic, and we don’t have enough money in our mattresses to cover it; we have to be competitive globally in raising funds.”

It’s a message Treadwell has taken to heart. He said he and Qilak President and COO David Clarke found a backer in Lloyds Energy of Dubai for their plan to export liquefied natural gas directly from a proposed facility offshore Point Thomson on the North Slope, to markets in Asia via ice breaking tankers.

The Arctic has a host of commercial opportunities and products, and energy looms large in the region.

Arctic energy accounts for 40% of Russia’s GDP, and energy makes up the lion’s share of Alaska’s $50 billion GDP, Treadwell said, adding, “Greenland’s independence movement was somewhat based on projections of oil and gas potential in the North, and we all know what Norway has done in the North Sea since the 1980s.”

Russia is already shipping 16.5 million tons of Arctic LNG from a facility in Yamal, through the Arctic Ocean to markets in the Atlantic region and the Pacific region, he said.

“We have not yet made our Arctic oil and gas province work, but it can and we will,” he said. “Most of the modules at Yamal were hauled north right past Alaska from Korean shipyards through the Bering Straits,” he said. “Korea and Japan - in an age of sanctions - our strongest allies in East Asia have just come up with the commitment to triple the size of this facility.”

The key to the voyage is double acting tankers, sporting a bow that is made for open water and a stern that is made for ice breaking, he said.

The ships are designed by Aker Arctic Technology Inc. of Helsinki, Finland, and 15 were built in Korea for the Yamal project.

Qilak hired Aker to do a draft report of how to apply the technology in Alaska, Treadwell said.

New age of Arctic energy participation

The Russian project and its attendant technology have ushered in a new age of Arctic energy participation in the global economy, Treadwell said.

“In 2018, about 320 million tons of LNG was consumed in the world, 16.5 million tons of that came out of the Russian Arctic,” he said. “They’ve got commitments to double and triple, going up to about 45 million tons; Putin has announced that he’d like to get up to 100, and here we are in North America.”

“I said to my counterpart in Yamal, you know, when your tankers go by, I hope you’ll wave at us.” Treadwell said. “But if you thumb your nose I won’t blame you, because you beat us to the market.”

While the Russians have gotten the jump on Alaska in getting their Arctic gas to market, Alaska’s North Slope is blessed with significant geographical advantages to serve LNG-thirsty markets in northeast Asia.

“If Russia is doing 2,600 miles of sea ice to get to the ice limit in the Bering Strait, we have only about 600 miles from the Prudhoe Bay area, the Point Thomson area to get to the Bering Strait.” he said. “That means much less ice breaking.”

After Sakhalin Island, Treadwell added, Alaska is the closest potential LNG provider to northeast Asia.

No costly overland pipeline required

The Qilak project has advantages over a long-studied proposed gas pipeline from the North Slope to the Cook Inlet port of Nikiski on the Kenai Peninsula, Treadwell said.

“Most people don’t realize this, but geographically, Prudhoe Bay and Nikiski are about the same distance from Tokyo,” Treadwell said. “If you’re shipping something from south Alaska or from north Alaska it’s about the same distance, shipping wise.”

“If you a look at the capital cost per delivered ton of LNG with an 800-mile pipeline, it’s about $2,150 at (a project cost of) $43 billion, and we have a minimum order quantity of 20 million tons a year,” he said. “If on the other hand you can take gas slightly offshore, put it on a barge, manufacture it into LNG on the barge, and pick it up with those ice breaking tankers that the Russians are using, your capital cost to get LNG to the market on the water is about $1,250 ... it’s also a much smaller order quantity.”

ExxonMobil signed a heads of agreement with Lloyds Energy that “basically reserves that gas at Point Thomson for us to do a feasibility study, for us to finalize our off take agreement, and for us to finance an LNG project that would take 560 million feet a day - expandable to about a billion cubic feet a day,” Treadwell said.

“It’s about 3,300 nautical miles to Tokyo. A round trip, plus six port days each tanker would take about a month round trip, with a slightly longer time in the winter,” he said. “We believe that one tanker a week would be taking gas out of our module 12 miles off of Point Thomson.”

“All told, it’s about a $5 billion project to start,” Treadwell said. “Lloyds Energy has already spent about $60 million developing both upstream and downstream concepts.”

A number of Alaska communities and projects on the water may be able to benefit right away from Arctic LNG.

“We were asked when we announced the Qilak project, ‘what are you going to do to make gas available for Alaskans?’” Treadwell said. “To which my answer is this: Russia is traveling by with gas that sells for $8 a million Btus in Asia, why don’t we bring in some now?”

“If Yamal gas is good enough for Boston and Puerto Rico, it’s good enough for us, and it will help develop the market for LNG in places like Red Dog, like Nome, places like Western Alaska,” I believe that we will see LNG bunkering and LNG fuel in our power generation in Western Alaska fairly soon.”

Not too late to crack Asia market

Treadwell believes Alaska can get its Arctic gas into Asia markets, despite the expanding supply of Russian gas.

“Here’s the argument that we make to you politically in the Asian marketplace,” Treadwell said. “To our allies in Japan and Korea we say, you know what you’re doing with Russia; we understand, but if you’re going to open up a huge new gas province in Russia, how about 4 million tons to open up a huge new gas province in North America?”

The head of the Japan Bank for International Cooperation (JBIC), Gov. Maeda - who met with Gov. Dunleavy on his last trip to Japan - I brought him to Washington to meet with our delegation and the White House, Treadwell said. “He sat down at the White House and he said, ‘You know, we’ve got a trade issue between us and we’re not here to talk about trade, but we do have an agreement between the United States and Japan called the Japan-United States Strategic Energy Partnership (JUSEP). Under that program we’ve agreed to help invest $10 billion in U.S. LNG upstream, and we like this project in Alaska. Furthermore, we have agreed with the United States and Australia that we are going to help to fund the projects downstream in response to China’s Silk Belt and Road policy. We plan to develop a power plant in the Philippines and we’re going to team up with this Alaskan project and Lloyds to help bring that gas to the Philippines.’”

“So, we’re getting very strong support from the Japanese government on this,” Treadwell said.






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