Providing coverage of Alaska and northern Canada's oil and gas industry
October 2011

Vol. 16, No. 44 Week of October 30, 2011

Market will determine fate of LNG plant

Kristen Nelson

Petroleum News

ConocoPhillips is exploring potential opportunities for the Kenai liquefied natural gas plant, currently expected to ship out its last tanker of LNG in November. The plant could be used to handle imported LNG or refurbished as an export facility. ConocoPhillips believes such opportunities exist, but “we cannot speculate on which outcome is more likely,” Darren Meznarich, manager of ConocoPhillips Alaska’s Cook Inlet assets, told the Senate Resources Committee Oct. 20.

ConocoPhillips’ purchase of Marathon’s 30 percent of the facility in late September, “demonstrates that we believe there are future opportunities for the facility,” he said.

A decline in market conditions led to the announcement last February that the plant would likely be shut down in April or May, but the Japanese tsunami in March and “our success in marketing LNG to new customers” have kept the plant open, Meznarich said, adding that it is “expected to operate into November, prior to being shut down and preserved for an interim period for potential future use.”

Possible future uses

Conversion to an import facility is one such option.

Cook Inlet utilities have testified that a likely shortage of natural gas in Cook Inlet over the next several years will result in LNG imports and regasification, Meznarich said.

In this short-term import scenario, “the plant, its dock and its LNG tanks could serve a role in the interim solution where LNG is imported and regasified to supply natural gas to the Southcentral utilities and users,” he said.

Longer term, if North Slope natural gas becomes available in Southcentral or if there is a significant Cook Inlet natural gas discovery, “the plant could be refurbished and serve as an LNG export facility.”

If no future opportunities materialize, “we will permanently shut down our plant operation,” Meznarich said.

Changes to plant

Meznarich said that in an import scenario, the plant’s dock would be used to receive ships and LNG would be offloaded to the existing LNG tanks. A regasification facility would be required to heat the LNG, turning it back into gas before it is compressed and sent into the pipeline.

“You would have the liquid LNG coming in and you’d have something like steam on the other side of a heat exchange heating it up,” with some natural gas used for the steam conversion, he said.

Regasification would require new facilities, “but the dock and the LNG tanks could be used again and those are real valuable in that process.”

He said the cost of such a conversion is confidential and while it is material it’s nothing like the cost of the proposed bullet line.

Any expansion of the plant to handle more export capacity — if gas were available from the North Slope, for example — would be something developers of the gas would look at, Meznarich said, “but it would depend on the price and the commercial and fiscal terms.”

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