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House Energy hears plans for Cook Inlet LNG import terminals
ALAN BAILEY for Petroleum News
During a Jan. 27 meeting of the House Energy Committee officials from Harvest Midstream, Enstar Natural Gas Co. and the Regulatory Commission of Alaska talked about plans for importing liquefied natural gas to Southcentral Alaska in response to pending shortages of adequate gas supplies from gas and oil fields in the Cook Inlet basin.
There are three projects for the establishment of LNG import facilities around Cook Inlet.
Harvest has been moving ahead with a project to convert the existing LNG export facility at Nikiski on the western shore of the Kenai Peninsula into an LNG import facility. Harvest has an agreement with Chugach Electric Association to use the terminal to supply Chugach Electric with gas via the terminal.
Glenfarne, the company planning to build a gas pipeline from the North Slope, has a plan to build a new LNG import facility, also at Nikiski. Enstar anticipates obtaining gas via that terminal. Once the North Slope gas pipeline has been fully completed the new LNG facility would be converted into an LNG export facility.
And, as previously reported by Petroleum News, Cook Inlet LNG LLC is planning an offshore liquefied natural gas import facility using a Floating Storage and Regasification Unit, or FSRU, connected to the Osprey platform on the west side of Cook Inlet.
The House Energy meeting only discussed the Harvest and Glenfarne projects.
Firm gas supplies are essential The key issue that the utilities are facing is the need for firm gas supplies, either from gas producers or from gas held in storage facilities, to ensure continuity of supplies for consumers. Unless and until a gas pipeline from the North Slope comes into operation, local gas supplies will need to be bolstered by imported LNG, as supplies from Cook Inlet decline and firm supplies in required quantities cease to be available.
John Sims, president of Enstar, told the committee that the availability of firm gas supplies is already becoming an issue. A forecasted extreme cold spell in January, which fortunately did not transpire, would have required Enstar to request the military to cut back its gas consumption. And Matanuska Electric Association might have had to switch from gas to diesel for its power generation, Sims said.
A timing issue Sims commented that, ultimately, the Glenfarne import facility could import sufficient LNG to meet all the utilities' needs. Unfortunately, however, there is a timing issue, in that the firm gas supplies for different utilities come to an end in different years. For example, Chugach Electric's firm gas supplies end in 2028, before the Glenfarne terminal can realistically go into operation -- hence Chugach's involvement with Harvest's Nikiski terminal conversion. That terminal is expected to come online in 2028. Enstar has previously indicated that the existing Nikiski terminal will not have sufficient capacity to support all the Southcentral utilities, including Enstar. Hence the need for the Glenfarne terminal.
Status of the Harvest Midstream project Sean Kolassa, president of Harvest Midstream, talked about the status of his company's project to convert the existing Nikiski LNG export terminal for LNG importing. The project involves the construction of five new compressors, two LNG vaporizers, six new LNG pumps and the modernization of the control room. A meter site will need to be built. The plan is to use the existing marine dock, with some upgrades to the infrastructure. Those upgrades will support current LNG vessel sizing, Kolassa said.
The project provides speed, certainty and flexibility, Kolassa told the committee. Importantly, while the facility site has a large footprint with the capacity to accommodate additional infrastructure that may eventually be needed, the facility already has pipeline connectivity to the gas transmission pipeline system.
"What makes this project very cost-efficient is the ability to utilize the existing footprint and infrastructure, and specifically the dock and tankage," Kolassa said.
He said that on Nov. 11 appropriate experts had completed an inspection of the facility and established that the facility had been very well maintained and was well positioned for the importing of LNG. The facility also preserves the option to be part of an LNG export solution, if a North Slope gas pipeline is constructed, Kolassa said.
Can meet Southcentral's near term needs Kolassa said that Harvest is pursuing a permitted capacity of about 20 billion cubic feet per year of gas, a volume sufficient to meet Southcentral's near term needs. However, the facilities that are being installed will have an import capacity of up to 73 billion cubic feet per year, he said.
The capital cost of the project is estimated in the range of $300 million to $350 million and Harvest is moving towards making a final investment decision that will tighten the cost estimate. The company has already spent millions of dollars on front-end engineering design to define the project scope and establish the project timeline, Kolassa said.
Kolassa also emphasized that the import capacity could be expanded through permit amendments with FERC and the Coast Guard. For example, further tankage could be added. And the company is maintaining flexibility, so that the site could revert to becoming an LNG export facility in the future, if necessary.
"The project is scoped to function either as a temporary or a long-term solution for Railbelt gas needs, depending on how supply options evolve," Kolassa said.
The fact that the project involves the modification of an existing facility results in straightforward permitting. And, based on current planning assumptions, the facility is expected to come online in late 2028, Kolassa said. He also commented that Harvest needs customer commitments to the use of the terminal before a final investment decision can be made and that those contracts would require RCA approval.
Recovery of costs for Glenfarne project Sims talked about the planned Glenfarne import terminal. He emphasized that Glenfarne is itself proposing to develop its LNG import facility, with Enstar as its customer. Enstar will have no capital investment in the project, he said. The planned capacity of the facility is 300 million cubic feet per day, with the possibility of future expansion.
"We're promoting this project because after two years, $4.6 million of research, analysis, understanding market demand, this was the project that rose to the top," Sims said in response to a question regarding whether Enstar was promoting the project simply to make a significant rate of return.
He commented that, based on Enstar's current gas supply contracts, the utility will need access to imported LNG starting in 2033. And a particular appeal of the Glenfarne project is the manner in which the recovery of the cost of the facility can be spread over perhaps a 30-year term, regardless of whether the facility continues to be used for LNG importing or whether it becomes an LNG export facility.
"And, so, that's what we want to do for our customers is to spread out the cost as much as possible, so there isn't that huge impact," Sims said, comparing the financing arrangements to a long-term mortgage.
The cost of gas The cost of gas obtained through the import facility would be the sum of the cost of the imported LNG, the operating costs of the tugs needed for the terminal, and the cost of operating the terminal. The total estimated cost of gas from imported LNG in 2033 would then be about $15 per thousand cubic feet, assuming that only Enstar was using the terminal. If, however, the imported gas that all the utilities needed came through the terminal, that cost would drop to about $13 per thousand cubic feet. If, on the other hand, it became unnecessary to import LNG, Enstar would remain committed to paying its share of the terminal cost, Sims said.
However, if the gas pipeline from the North Slope comes into fruition, and the Glenfarne LNG import terminal becomes an export terminal, the entities exporting LNG, not Enstar, would become responsible for the terminal costs.
This flexibility does not exist in the Harvest LNG terminal option, Sims suggested. He commented that, if the gas pipeline is built, the Harvest terminal, unlike the Glenfarne terminal, would become a stranded asset. Moreover, the Alaska LNG project that Glenfarne is conducting is the only project with the potential to reduce the cost of energy in Southcentral Alaska he said.
Tim Fitzpatrick, communications director for Glenfarne, has told Petroleum News that the Glenfarne import terminal, together with the eventual export terminal and the Alaska LNG pipeline, will give Alaska utilities the only flexible and efficient long-term solution for reliable, affordable energy aligned with Alaska's future. The fully permitted LNG terminal will feature significant dual-use infrastructure like jetties, piers and storage capacity that will accommodate imports and enable exports without Alaskans investing in infrastructure, he said.
Duplication of import capacity There was discussion during the House Energy meeting about potential issues relating to the duplication of import capacity resulting from the implementation of more than one import facility. Would this result in unnecessary costs that would need to be recovered from gas and electricity consumers in Southcentral? And would government regulators be willing to permit the construction of duplicating facilities and approve any impact of the duplication on the cost of gas?
John Espindola, chair of the Regulatory Commission of Alaska, told the committee that, while the RCA is responsible for regulating the costs of the energy that public utilities supply to consumers, the RCA does not regulate the construction of LNG terminals. The Federal Energy Regulatory Commission has regulatory authority over the siting and construction of LNG terminals. RCA regulation would not come into play for terminal duplication until a utility makes a filing that encompasses the cost impact of LNG importing from a second terminal, Espindola said.
Sims questioned whether it would be necessary to obtain rate approvals from the RCA in order to proceed with the LNG terminal projects. He agreed that the RCA has a role in the situation, but commented that, as in the development of the Cook Inlet Natural Gas Storage Alaska facility a number of years ago, the RCA could conduct confidential discussions, asking some very challenging questions about the plans.
--ALAN BAILEY
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