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Persily: not our fault there’s no gas line
Former Alaska Natural Gas Transportation Projects federal coordinator reviews LNG market, challenges, for House Energy Committee Kristen Nelson Petroleum News
Larry Persily updated the House Special Committee on Energy March 26 on the history and prospects for moving Alaska North Slope natural gas off the Slope and to market in a commercially viable manner.
Persily has served as deputy commissioner of the Alaska Department of Revenue under two governors and as coordinator in the Office of the Federal Coordinator, Alaska Natural Gas Transportation Projects. That office, he told the Energy Committee, was focused on making an Alaska gas project happen.
Persily follows international natural gas and liquefied natural gas and has followed Alaska natural gas and liquefied natural gas proposals, including the current Alaska Stand Alone Pipeline project and the Alaska LNG project.
$900 million Persily listed efforts made to get a North Slope gas line built since 2001, when it looked like the Lower 48 might need North Slope gas. Since then, he said, the state has spent close to $900 million on a variety of projects. He said it’s not for lack of spending that the state doesn’t have an LNG project.
The global LNG market started in 1964 with a cargo from Algeria and for decades there were not that many suppliers, not that many buyers, and everything was long term and stable. The market really grew in the last 20 years, he said, with a massive expansion in Qatar in 2004 and eight projects built in Australia in the last decade.
In the last 10 years, everybody has wanted to get into the LNG trade, and that’s where we are today, Persily said.
On the issue of North Slope gas being warehoused - Persily said that isn’t the case: The North Slope producers have used that gas to produce more oil, which was the highest and best use of that gas and resulted in a lot of money for both the companies and the state.
If there was a pipeline, the producers could book the reserves on their balance sheets - 5.5 billion barrels of oil equivalent in gas - but the project has to be economic for them to do that, he said.
The competition Persily said North Slope gas has competition, and there are too many less risky, lower-cost and ready-to-go projects ahead of Alaska.
Qatar is losing leadership in LNG to Australia, where $200 billion has been invested in 10 LNG plants, 25 percent of global capacity. But Qatar plans a major expansion to get back to the No. 1 position by the middle of the next decade.
Russia was a bit player at Sakhalin, he said, but then it brought Yamal online in 2017, is looking at a second Arctic plant and expansion at Yamal.
And the total output from Mozambique could exceed the proposed Alaska project.
An expansion decision is expected this year for Papua New Guinea LNG, and a Shell consortium is building the $30 billion LNG Canada project at Kitimat. A decision to double the 14 million tonne a year Kitimat project (Alaska would be 20 million tonnes), due to come online in 2024-25, is expected before they open up, he said.
In the Lower 48, there will be six LNG export terminals by late 2019, with five of the six converted from unused LNG import terminals.
Construction costs Persily included a slide on average worldwide capital cost for new liquefaction capacity in his presentation: for 2008-17, $1.501 billion per tonne for greenfield projects and $458 million per tonne for expansions and brownfield projects, those converted from LNG import.
In Qatar the cost was less than $400 million per tonne in 2008-17, whereas at the stated $43 billion for 20 million tonne Alaska project, the cost would be $2.150 billion per tonne.
Financing issues On financing, Persily said it is unusual for lenders to take a big risk. Typically financing for a big project is split up, he said, and lenders like to see that you have some of your own cash in the project.
At Sabine Pass, 25 banks loaned a total of $2.85 billion, and the average bank loan on LNG projects was $256 million in 2014, $300 million in 2015 and $381 million in 2016, he showed on a slide.
China was a big lender for Yamal LNG, he said, because the Russians couldn’t get western financing. In that case there was $6 billion from each of two Chinese lenders, a total of $12 billion. But, Persily said, when China loans you money there are strings attached, such as access to project jobs.
Asked about wildcards in LNG, Persily said China is a big one, with their economy showing signs of weakening. Then there is Russian pipeline gas and the question of how much Putin is willing to discount the price. Mozambique is also an issue - if all three projects there go ahead, that will be three times what we have, and they are in a good place to serve south Asia, China and India.
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