Conoco’s Lance says Alaska has advantages in selling LNG to world

The worldwide demand for natural gas supplied as LNG is growing 6 to 7 percent a year and existing supply is falling 2 to 2.5 percent a year, creating an opportunity for some 36 billion cubic feet per day of new supply by 2025, Ryan Lance told the Resource

Development Council’s annual meeting luncheon June 24.

There is, however, a large supply overhang, said Lance, chairman and CEO of ConocoPhillips: Of the expected need to which supplies are not yet committed the United States and Canada will probably only capture some 40 percent.

Lance’s talk was entitled “The U.S. Oil & Gas Renaissance - Alaska’s Role,” and he said the development of natural gas from North American shale plays has resulted in such an increase in natural gas production in North America that by 2016 supply will exceed demand, enabling LNG exports.

Even with the growth in Lower 48 and Canadian gas production, Alaska has advantages in selling its LNG into the world market, he said: LNG has been exported from Alaska for more than 40 years; Alaska is closer to major Asian Pacific markets than competing projects; and buyers want diversity of supply.

“This LNG clearly represents an opportunity for the state,” Lance said, but for an Alaska project to compete, “it’s going to take reasonable supply cost and reasonable fiscal terms” because there will be competition for partners and projects, with 40 LNG terminals proposed to date just in North American, and more around the world.

ConocoPhillips is partnering with BP, ExxonMobil, TransCanada and the Alaska Gasline Development Corp. on a North Slope LNG project. The Legislature passed enabling legislation in April allowing the state to participate as a 25 percent equity owner by taking its royalty and its production tax on natural gas in kind.

Oil production

SB 21 made investment in oil and gas projects in the state more attractive than it had been under the previous tax system, Alaska’s Clear and Equitable Share or ACES, and passage of the bill allowed focus back on the oil and gas industry in Alaska, Lance said. He said he hopes that continues “because Alaska has a pretty important role to play in the U.S. energy renaissance that’s going on today.”

Under ACES, while investment grew elsewhere as oil prices rose, it stayed flat in Alaska and production continued to decline, Lance said.

“We have enormous remaining potential here in Alaska,” he said. “The legacy fields are still world-class resources” and technological progress allowing more of the oil to be produced will continue.

With the improvement in the fiscal climate following passage of SB 21, activity is picking up, Lance said, with ConocoPhillips’ Alaska 2014 budget of $1.7 billion up 50 percent from 2013 and double the average from 2008-12.

Two rigs have been added to the Kuparuk fleet (ConocoPhillips is the Kuparuk operator) and the company has announced some $2 billion in new projects, three of which are up for approval at the end of this year: a new drill site at Kuparuk; development of Greater Mooses Tooth 1 in the National Petroleum Reserve-Alaska; and viscous oil development at Kuparuk, the NEWS or Northeast West Sak project.

Asked whether ConocoPhillips has any interest in shale in Alaska, Lance said they continue to look at it, and said extending the limits at Alpine involves developing tighter and tighter rock. Some of the technology used at Alpine, Kuparuk and Prudhoe is some of the technology used in the Lower 48 to get oil out of tight rocks, he said.

Lance noted that there are people testing source rock in Alaska, trying to see if they can be made productive, but said “the source rock in Alaska does look different than what’s being successfully developed in the Lower 48, so time will tell if the technology” can make it productive in Alaska.

- KRISTEN NELSON