LNG into Cook Inlet could kill spur line

Kristen Nelson

Petroleum News

The Alaska Natural Gas Development Authority has had disquieting discussions about Cook Inlet natural gas supplies in the past and at a Dec. 18 board meeting they got more unsettling news about one possible stop-gap measure discussed in the past.

The subject was imported liquefied natural gas.

Board member Dan Sullivan, chair of the Anchorage Assembly, asked about the export license for the Kenai LNG plant, which expires in 2009 if not renewed, and about using the plant to import LNG if that export license is not renewed.

ANGDA has been working on a spur line to bring gas into Southcentral Alaska, but Sullivan said he didn’t think customers cared where they got their gas, as long as they got the cheapest gas possible.

ANGDA Chief Executive Officer Harold Heinze said as far as he knows ConocoPhillips Alaska, operator of the LNG plant, hasn’t made a business decision yet on whether or not to apply for an extension of the export license, but said he thinks the company will have to show its hand sometime in the next quarter.

Industrials needed

“I have continuously and will continue to make the argument that while in the short term it is difficult to understand our limited gas resource in this area leaving the area, I sure know that 10 years from now I’ve got to have those people around or my bill to heat my house is a lot bigger,” Heinze said.

Heinze told Sullivan it might be as much as 75 cents per British thermal unit to re-gasify LNG at Kenai. That’s 75 cents in addition to the delivered price.

And that delivered price would be comparable to Lower 48 prices.

“Generally LNG delivered is going to be at the same base price as utility prices in say Chicago or something like that, so we would be paying a relatively small premium (for re-gasification) compared to Chicago,” Heinze said, noting that for the eight or 10 years it would take to get a main line built from the North Slope to connect with a spur to Southcentral it might be worth it, as the alternative would be converting furnaces to diesel.

RCA also a factor

That cost would go into the rates consumers pay, he said. And the Regulatory Commission of Alaska would have to approve that rate.

He said he doesn’t see imported LNG as a short-term solution because of the costs to convert the Kenai facility to receive and re-gasify LNG.

If the commitment was made to import and re-gasify LNG and that $300 million was spent, “It really does limit your ability to then turn around two or three years later and say let’s have a spur line,” Izzo said.

Consumers are going to pay 100 percent of the spur line and if the cost for that line is $1 billion, “that billion dollars and its debt service” will be paid by consumers in their gas bills.

If you had LNG going to Valdez, Izzo said, you might cut that billion dollars in half.

He said reliability is also “an important component of service,” and asked if you want all of your fuel on ships at sea. “It can work; there are models around the globe that show that can work. But for $200 million more (than the $300 million — i.e. the half a billion cost for a spur to Southcentral in conjunction with a spur to Valdez), if you tell me that I never have to worry about it again because I’ll be connected by spur line, one time payment,” that would be the way to go, Izzo said.

Heinze said those are the kinds of realities that have made ANGDA “one of the strongest advocates of encouraging exploration in Cook Inlet.” He said they are suggesting that the new administration look at incentives for Cook Inlet exploration, so that companies will look for and find new gas.