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CERA sees Alaska gas in 2015 Consulting firm briefs state officials on natural gas pipeline, prices, LNG issues; says Alaska LNG can’t compete Larry Persily Petroleum News Government Affairs Editor
Alaska state officials heard a lot about North Slope natural gas recently from Cambridge Energy Research Associates. The global consulting firm forecasts Alaska gas could reach Lower 48 markets via pipeline in about 2015; Alaska pipeline gas may not dampen prices as much as CERA had earlier predicted; U.S. natural gas prices will remain high into 2008; and liquefied natural gas from Alaska to West Coast markets is not likely competitive on price or timing.
CERA briefed several state officials May 17 as part of Alaska’s continuing effort to learn as much as it can about natural gas markets in anticipation of someday successfully negotiating a deal for construction of a line to move North Slope gas to Lower 48 consumers.
The consulting firm also offered its assessment of the anticipated strong demand for North America LNG imports.
“We’re tracking 37 projects (LNG terminals) right now that we think are past the press release stage,” said Michael Zenker, senior director for CERA’s North American Natural Gas Service. Of those, CERA expects five to eight new terminals to open by 2010, in addition to any built exclusively to serve Mexico.
CERA’s view is similar to the recent prediction from another global oil and gas consulting firm, Wood Mackenzie Ltd., which said seven new terminals could be online by 2010 for the United States, Canada and Mexico.
“Definitely the Gulf (of Mexico) is going to be the most likely center point for terminals,” Zenker said in an interview May 25. A proposed terminal in the Bahamas to serve Florida “looks doable,” he said, and there are a lot of potential suppliers in Australia, Indonesia, Russia’s Sakhalin Island and elsewhere competing over U.S. West Coast deliveries. More liquefaction capacity needed, too And while some observers see the lack of receiving terminals as a problem for meeting North America’s gas demand, CERA sees an equal if not greater need for more decisions by producers to build new liquefaction capacity. There has been a lot of talk of developing new production sites, but not enough groundbreakings. “There are some major proposals out there not in the committed category,” Zenker said.
All those proposals are part of the problem for advocates of delivering Alaska LNG to California. There is a lot of competition chasing a limited market.
“There’s an early mover advantage,” for the first suppliers to sign contracts in a market that doesn’t need anything close to the number of proposed LNG terminals, Zenker said. A lot of Alaska’s competition is eager to line up West Coast deals as an initial entry into serving the United States, he said. They can get their liquefaction plants online years ahead of an Alaska pipeline to tidewater, liquefaction plant and Jones Act tankers.
The 800-mile pipeline from the North Slope to tidewater and the federally mandated use of more expensive U.S.-built and U.S.-crewed tankers also knock down Alaska’s price competitiveness in the LNG trade, he said, adding that moving gas by pipeline makes much more sense.
CERA’s most recent long-term outlook at North America gas markets forecasts an Alaska pipeline starting service in 2015. And although its earlier reports had predicted the delivery of so much gas could cause a noticeable drop in market prices, CERA’s current thinking is changing, Zenker said. CERA softening view on price effect There likely will be some flexibility among LNG suppliers to divert cargoes to other markets if it looks like Alaska gas is creating too much downward pressure on U.S. prices, he said. The consulting firm is working on an updated price and market forecast, due out later this year.
CERA last October forecast a moderate, two-year “dampening of prices when Alaska comes on-stream.” That was a much more subdued statement than its spring 2003 report: “These volumes would immediately depress market prices once Alaska gas reached market.”
A much more aggressive view of the effect on domestic prices from Alaska gas came last fall from an 18-member national commission, funded by a collection of nonprofit foundations. The commission said the new supply could knock down U.S. prices by an average of about 60 cents per thousand cubic feet for 10 years.
North Slope producers have cited the fear of driving down market prices as one of their worries in deciding whether to proceed with constructing the Alaska line, estimated at up to $20 billion.
High prices certainly make the Alaska project look more attractive, and CERA expects supply constraints to keep prices around $6 per mcf (nominal dollars) through 2007 at Henry Hub. Prices will ease somewhat by 2008 — but not too much — as new LNG terminals come online, Zenker said. “In 2008 they don’t come down enough to scare off LNG development.”
Years of high prices also may help push Congress to pass tax incentives and other legislation needed to ease North Slope producers’ financial worry about building the gas line, he said. “Our basic market message is the Alaska project will not move forward … without some incentives from the federal government.”
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