Sempra ends alliance with Alaska port authority

By Kay Cashman

Petroleum News Publisher & Managing Editor

According to Sempra LNG spokesman Art Larson, Sempra has withdrawn its support of the Alaska Gasline Port Authority’s all-Alaska LNG project.

“We have notified the port authority by letter,” Larson said.

He said the decision was not due to “our relationship with the port authority or our belief that a project could not be successful.”

Larson said “capturing the natural gas market in a competitive market requires quick, decisive action, especially in a West Coast market being actively pursued by others. In our view the protracted political wrestling within the state has proven both costly and time consuming for the project. And the legislative support that the project had hoped to attain by the end of May did not materialize. That delay played a key role in our decision.”

Alaska Gov. Frank Murkowski reportedly telephoned Fairbanks North Star Borough Mayor Jim Whitaker when informed of the news. Whitaker is chairman of the port authority.

“I was both disappointed and surprised that Sempra felt the challenges too great to proceed. Upon hearing of Sempra’s decision, I shared with Mayor Whitaker my disappointment with the company’s action. I also reaffirmed my commitment to assist the port authority in its efforts to craft a successful North Slope gas commercialization effort,” Murkowski said.

The state is in two sets of negotiations under the Alaska Stranded Gas Development Act — with the North Slope producers and a Canadian pipeline company — for fiscal terms in lieu of taxes for a North Slope gas project. Both would take the gas through Alaska and then Canada to Lower 48 markets.

The port authority hoped to build an 800 mile gas pipeline in parallel with the existing oil pipeline from the North Slope to Valdez – hence, the name “all-Alaska” gas line. In Valdez, the gas would be liquefied and then transported to the U.S. West Coast via LNG carriers. In December the port authority signed an agreement with Sempra LNG, a unit of San Diego-based Sempra Energy, to assist in developing the project.

Recently the state Department of Revenue told the port authority it had until Aug. 5 to show it has access to natural gas for its project, or to provide a financial guarantee of its performance, in order to be eligible to negotiate with the state for a fiscal contract under the stranded gas act.

A May report from Tristone Capital on Arctic gas projects and how well they compete with LNG projects for North America markets, dubbed the Alaska LNG project the mostly costly of all Arctic gas projects.

“We’ve looked at over 200 LNG trains around the world. This (Alaska LNG project) is the highest capital cost by far,” the author of Tristone’s report, Chris Theal, said. (See story in May 15 issue of Petroleum News.)