Providing coverage of Alaska and northern Canada's oil and gas industry
December 2012

Vol. 17, No. 50 Week of December 09, 2012

EIA includes Alaska LNG project in annual reference case forecast

The U.S. Energy Information Administration is including a North Slope liquefied natural gas export project in the reference case of its annual forecast of domestic energy markets

After keeping an Alaska natural gas pipeline out of the reference case for the past two years, the statistical arm of the U.S. Department of Energy included a revised version of the project in the reference case of its Annual Energy Outlook 2013, released Dec. 5.

Despite looking five years further into the future than the 2011 and 2012 outlooks, the newest reference case still excludes an Alaska natural gas pipeline into the Lower 48 “because assumed high capital costs and low natural gas prices in the lower 48 states make it uneconomical to proceed with the pipeline project over the projection period.”

But the 2013 reference case includes an Alaska LNG export project coming online around 2023 and contributing to a near quadrupling of domestic LNG exports by 2040.

While the 2012 outlook offered projections on the domestic energy landscape through 2035, the 2013 addition extends the outlook to 2040. In each outlook, the “reference case” provides a baseline for considering the future. The full version of the outlook, scheduled for March, will also include “side cases” that consider the potential impact of changing regulations, commodity prices and other factors on domestic energy markets.

Shale still disruptive

The EIA made waves in Alaska two years ago when it removed the North Slope gas pipeline from the reference case of its Annual Energy Outlook 2011, citing low gas prices in the wake of increasing domestic unconventional gas production. The reference case in the Annual Energy Outlook 2010 had projected the pipeline would be finished in 2023.

Those disruptive factors remain in play.

The Annual Energy Outlook 2013 reference case projects Henry Hub gas prices will remain below $4 per million Btu through 2018, increasing to $5.40 per million Btu by 2030 and $7.83 per million Btu by 2040 as production shifts to higher cost plays.

Additionally, the reference case expects gas production to surpass demand by 2020 — two years earlier than the agency forecast last year — largely without Alaska’s help.

The increased production would make the U.S. a net exporter of natural gas, improving the economics of an Alaska project. In the reference case, the EIA expects the U.S. to export 0.6 billion cubic feet of LNG per day by 2016, increasing to 4.5 bcf per day by 2027, as export volumes peak from facilities on the Gulf Coast and in Alaska.

After two competing projects to build a gas pipeline from the North Slope into the Lower 48 failed to yield sufficient shipper commitments last year, Gov. Sean Parnell challenged the industry to focus on a project to export North Slope natural gas to East Asia, as LNG.

In October, the project sponsors estimated that a large diameter pipeline capable of moving between 3 bcf and 3.5 bcf per day — plus associated plants, tanks and terminals — would cost between $45 billion and $65 billion in 2013 dollars.

Cautious on oil

While the Annual Energy Outlook 2013 shows some optimism on Alaska LNG, it is less optimistic about another Parnell administration goal: increasing Alaska oil production.

Under the reference case, Alaska oil production falls steadily through the mid-2020s, increases slightly for a few years and levels off for the remainder of the forecast period.

But tight oil production booms, while offshore and conventional onshore production holds steady, making Alaska an even smaller percentage of the domestic oil supply.

Early in his time in office, Parnell set a goal to increase throughput on the trans-Alaska oil pipeline to 1 million barrels per day from its current level of less than 600,000 bpd.

—Eric Lidji

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