|
Sixty-day review
AGDC, BP, ExxonMobil, reviewing AKLNG technical, commercial issues
Kristen Nelson Petroleum News
The Alaska Gasline Development Corp., in conjunction with memorandum of understanding partners BP and ExxonMobil, is reviewing the Alaska LNG Project with an eye to determining, by the end of April, whether the project is economic.
Joe Dubler, AGDC’s interim president, gave a status report on the project to the Legislature’s House and Senate Resources committees on March 22, one of three annual updates required under statute.
Dubler, who held senior leadership positions at AGDC between 2010 and 2016, was named interim president by AGDC’s board in early January. He told Senate Resources that one reason he was interested in coming back to the project was that the administration was working on re-engaging with the North Slope producers. He said he thinks that’s very important. All three - BP, ConocoPhillips and ExxonMobil - were approached, and BP and ExxonMobil were willing to enter into a non-binding MOU, signed in March.
MOU work Under the MOU both commercial and technical issues will be reviewed, Dubler said.
On the technical side, there will be a meeting of the parties in Houston the first week in April, he said, with AGDC flying down three engineers, BP sending eight and ExxonMobil a dozen or so. They’ll sit down and look at the project design and see if they can come up with updated cost estimates, Dubler said, noting that it has been three years since that was done.
The goal is to lower the total installed cost.
The technical group will also update the schedule to incorporate current assumptions and assist with what the presentation described as “timely and technically advanced responses” so permits can be obtained as quickly and cost-effectively as possible.
On the commercial side there are antitrust issues, he said, because both BP and ExxonMobil would be selling gas, and the state, if the Department of Natural Resources decides to take royalty gas in kind, would also be a seller. If the producers decide to provide tax as gas, then the Department of Revenue would also be in the game, with each of the departments having about one-eighth of the gas, for a combined total of some 25 percent.
That means antitrust issues preclude a discussion of the prices for buying gas or selling LNG, Dubler said. He said the state may use consultants Black & Veatch for a view on LNG prices because of the antitrust issues.
The focus of discussion will be the cost of service for the project, the total installed cost. Financing options and strategies will be addressed, along with equity and debt capital costs, internal rate of return and tax structure.
Dubler said they will use a modified version of the model developed by the Department of Revenue - the portion covering the midstream portion of the project - as a shared model between the parties. Each party will then take the results back to their board or management and decide if the project is something they want to pursue.
Stage-gate Describing the project’s path forward, Dubler said AGDC is returning to a stage-gate process for the Alaska LNG project.
With a stage-gate process at given points you stop and take a look and decide if you want to continue, he said, preventing you from going full tilt and ending up with a project that’s not economic.
At the end of pre-front-end engineering and design, in 2016, there was such a stage-gate, and the state’s partners, then BP, ConocoPhillips and ExxonMobil, determined that they did not want to continue.
AGDC then became the only entity in the project.
In January, as AGDC returned to a stage-gate process, the board said it wanted a stage-gate at the end of April, Dubler said. If the project passes that stage-gate, then AGDC will look for third parties to assist. If the producers aren’t interested but AGDC has determined to go ahead, it would look for additional parties, Dubler said.
Asked how parties who had signed letters of interest reacted to the change, Dubler told House Resources that AGDC sent letters to the 16 entities that had signed letters of interest, explaining the changes. It got good feedback from the larger companies.
The three Chinese companies with which AGDC has signed a joint development agreement were all excited about the change, since stage-gate is the industry standard and is what they’re used to.
Dubler said he didn’t think those companies were comfortable with the schedule that had been put out earlier, which had called for a final investment decision this year with construction beginning next year and first deliveries in 2023. He told Senate Resources it was obvious to him that you couldn’t do a final investment decision this year. You’d have to have financing lined up, and that couldn’t happen this year, he said.
Stage-gate success For the Alaska LNG project to continue to a FEED decision, AGDC would need to demonstrate that the project would have returns sufficient to attract private equity investment and debt financing. It’s a financing game at that point, and to get financing AGDC would need to get North Slope producers to commit gas to the project, Dubler said. The previous plan, he said, was for the state to purchase gas on the North Slope. AGDC would also need LNG purchase agreements.
And it would have to engage qualified project participants with world-class LNG project experience in order to minimize construction, execution and operation risks.
AGDC’s statutory objectives - gas to Interior and Southcentral and maximizing return to the state - would have to be met.
If the 60-day review yields a competitive project, then AGDC would look for third-parties willing to invest and continue on with the Federal Energy Regulatory Commission permitting process and then decide whether to proceed with FEED.
Legislature Dubler also said AGDC would be working hard to make sure legislators have information, with legislative observers added to the board. He said AGDC worked with the state Attorney General and AGDC inhouse counsel to have legislators participate in the board except in executive sessions. As non-voting board observers, the legislative observers are invited to participate in board meetings and board committee meetings. They are excluded from executive sessions.
Dubler told Senate Resources that Cathy Giessel, the Senate president, will represent that body and Rep. Gary Knopp will represent the House.
The Legislature passed a bill in 2016 which would have added legislators to the AGDC board as non-voting members, but it was vetoed by then-Gov. Bill Walker, who cited a constitutional prohibition against legislators holding “any other office or position of profit under the United States or the State.” There was also an issue of separation of powers raised in discussions of the legislation, but legislators pointed to membership they held on a number of other state boards and commissions.
In response to Walker’s veto, then Senate President Kevin Meyer said legislators on the board would provide “greater transparency, greater insight into the direction” of the Alaska LNG project.
Sen. Mia Costello, sponsor of the bill, said the veto sent the wrong message and said the governor “needs to share his vision for the gasline” and not cut legislators out of meetings.
Moving forward If the project moves forward Dubler said AGDC will be pursuing qualified third-party expertise.
One of the things the state doesn’t do well is run integrated gas projects, and AGDC will be looking to get some people back in the project to do that, he said.
He said AGDC is recommitting to the original Alaska LNG design, with transmission lines from Prudhoe Bay and Point Thomson, a North Slope gas treatment plant, an 807-mile, 42-inch steel pipeline and a three-train LNG facility at Nikiski.
ASAP AGDC has been working on two projects - the in-state line, the Alaska Stand Alone Pipeline, and the Alaska LNG project. It received a joint record of decision for ASAP from the U.S. Army Corps of Engineers and the federal Bureau of Land Management in March. That secures access to federal right of way, some 299 miles. Access to state ROW had been secured early in the project.
ASAP is geared to provide natural gas to Interior Alaska and Southcentral with no export component. There isn’t enough natural gas demand within the state to support that project, Dubler said, estimated at $10 billion to construct, meaning it would require a permanent state subsidy.
Because of that, ASAP has been put on the shelf. He said he didn’t anticipate it ever being developed unless there is a shortage of gas in Southcentral Alaska, Alaska LNG isn’t developed and it’s prohibitively expensive to import LNG.
Dubler said there have been issues of whether Alaskans would tolerate gas being imported with the known North Slope resource, but he said he wasn’t sure the Regulatory Commission of Alaska, which regulates such matters, would allow the state to ship gas down at a higher cost than importing it.
ASAP would have helped residents, he said, but not the state treasury. Alaska LNG, on the other hand, would allow the state to monetize North Slope natural gas for export.
ASAP and Alaska LNG share a common path for 80 percent of the Alaska LNG pipeline route, and the state got some good work out of it, such as boreholes - work which is being used for the Alaska LNG project, Dubler said. He also said that in the course of working with BLM and the Corps on ASAP, some issues were resolved which could transfer to Alaska LNG.
The agencies originally wanted the gas pipeline installed above ground on the North Slope, which is done for oil because the oil is hot. The agencies were convinced to allow the line to be buried - something which AGDC thinks will help FERC make the same decision for Alaska LNG. The Corps also allowed use of gravel for work pads for ASAP, where the preferred method is temporary pads, which are more expensive. And they aren’t going to require the removal of as much gravel as we thought, Dubler said.
So there was good work done on ASAP, Dubler said, which AGDC thinks can be used for Alaska LNG.
| 