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AIDEA increases REI project funding Agency is helping fund analysis leading to financing decisions for proposed LNG plant for exporting Cook Inlet natural gas to Japan Alan Bailey Petroleum News
Although Gov. Bill Walker signed a memorandum of understanding with Resource Energy Inc. on Dec. 23 for cooperation over the export of Alaska liquefied natural gas, the state, through the Alaska Industrial Development and Export Authority, has been working with Resource Energy, also known as REI, since April on a proposed facility for the export of Cook Inlet LNG to Japan. And, during its Dec. 16 board meeting AIDEA agreed to increase the amount of money that it is willing to put into REI’s LNG project.
Under the original funding agreement, approved in April, AIDEA had committed to pay 25 percent of the cost of up to $220,000 for studies leading to decisions over financing of the project. But the estimated cost of those studies has increased to $440,000 and during its board meeting AIDEA approved an expenditure of 25 percent of that revised amount. The studies in question are slated to be completed by the end of June.
LNG for Japan REI proposes to build a 1-million-ton-per-year LNG plant near the existing port at Point MacKenzie, across Knik Arm from Anchorage, to process about 160 million cubic feet per day of Cook Inlet natural gas. The primary objective would be to export LNG to Japan, although the company has said that gas would only be exported if local in-state gas needs can be met.
The LNG exports would meet some of Japan’s high gas demand, following an upsurge in gas-fueled power generation after the 2011 Fukushima nuclear disaster. REI consists of a consortium of Japanese industrial companies, gas companies and government entities, interested in importing Cook Inlet LNG to Japan in a timely manner and at an acceptable price. According to an AIDEA memorandum REI is also interested in LNG containerization for Alaska domestic gas distribution, either around the coast or via the railroad. The memorandum also says that the proposed facility would encourage consistent annual gas production in Southcentral Alaska.
REI anticipates attracting Japanese investors to fund a significant proportion of the total anticipated cost of nearly $1 billion for the LNG project. However, the company has asked AIDEA to consider providing some of the project funding, and to advise REI on potential U.S. investors for the project, the AIDEA memorandum says.
High future demand During the Dec. 16 AIDEA board meeting Eiji Maezawa, REI executive vice president and COO, said that future demand for LNG in Japan will be very high and that Japanese government entities are establishing private-public partnerships for LNG importing.
Mary Anne Pease, REI’s general manager and vice president in Alaska, told the board her company has memorandums of understanding with some Alaska Native corporations - senior managers from Calista Corp., one of these corporations, have met with many of the REI principals, Pease said. REI is in the process of finalizing some of the entities involved in joint venture partnerships, both in the Japan and in the United States, she said.
Pease said that Alaska attracts REI in part because of the state’s 40-year history of successfully exporting LNG from the Cook Inlet to Japan - those exports have come through an existing LNG plant, currently operated by ConocoPhillips, at Nikiski on the Kenai Peninsula.
Alaska has a short shipping distance to Japan, is not linked to Lower 48 shale gas development and, unlike Canada, has already settled its issues relating to Native claims, Pease said.
“Japan is in a crisis situation with their energy,” Pease said. “They cannot continue to support the very high LNG prices that you have even today in Japan. … They’re looking for a project that can be up and running, with gas being delivered, prior to 2020, and that has remained the goal and the objective of this project.”
Standalone facility The REI plan involves the construction of an LNG facility near the existing Port MacKenzie, with the facility having its own dedicated port for loading LNG onto about two tankers per week for shipment to Japan.
“This project needs a dedicated facility, dock and marine terminal that cannot be shared,” Pease said. “It would not be a multi-use type facility because of LNG being its primary purpose.”
She said that the facility would have an offtake point for LNG shipments in Alaska but that REI would not itself become involved with internal Alaska LNG transportation.
Adequate gas supplies Commenting that a U.S. Geological Survey assessment of the Cook Inlet basin had pointed to the likely existence of large volumes of undeveloped gas in the basin, Pease said that REI has been talking to several Cook Inlet gas producers about potential gas supplies for the proposed LNG plant. The company commissioned a detailed, confidential economic model of Cook Inlet gas fields - that model has indicated that there are sufficient proved and probable gas reserves in the basin to support both in-state gas needs and the anticipated gas demand from the LNG plant for 20 years or more, Pease said.
Engineering company KBR has recently completed a detailed cost and site analysis for the LNG plant, Pease said.
“We are in the process of acquiring the land and we are hoping we can wrap that up in the next couple of months,” she said.
REI has also conducted preliminary discussions with the Department of Energy and the Federal Energy Regulatory Commission over the licensing of the plant - the Department of Energy has undertaken to process Alaska LNG export projects expeditiously and separately from Lower 48 projects, Pease said.
Other proposals In a completely separate potential project, WesPac Midstream LLC has proposed building an LNG facility that would ultimately take over the existing Port MacKenzie. An initial phase of that project would produce LNG for Alaska use, especially for the Interior city of Fairbanks. A second phase would expand the facility for LNG exporting. WesPac has said that it will not require any government funding and that it has already negotiated arrangements for a long-term supply of Cook Inlet gas.
But Fairbanks gas utility, Fairbanks Natural Gas, has commented that WesPac’s proposal involves a “take-or-pay” agreement for LNG deliveries in Fairbanks, with an LNG price of $14.57 per thousand cubic feet, penalty fees for under-utilization, and a 20-year term.
Titan Alaska, an affiliate of Fairbanks Natural Gas, has for a number of years been operating a small LNG plant at Port MacKenzie for the delivery of LNG to Fairbanks. In November Cook Inlet gas producer Hilcorp Alaska announced that its subsidiary, Harvest Alaska, was buying the plant from Titan and that it planned to expand the facility. Hilcorp currently supplies all of the gas that the plant uses. Under the terms of a tariff advice filed with the Regulatory Commission of Alaska, Fairbanks Natural Gas anticipates buying LNG from Harvest at an initial price of $15 per thousand cubic feet.
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