With Alaska appearing to go from famine to feast in short order when it comes to proposals for bringing the state’s abundant gas supplies to market, two businesses have come up with concepts for monetizing Cook Inlet natural gas through the development of new facilities for the production of liquefied natural gas, or LNG.
The companies, WesPac Midstream LLC and Resources Energy Inc., want to build their plants at Port MacKenzie, the newly constructed port across the waters of Knik Arm from the city of Anchorage. And the proposed plants, spawned from a resurgence in Cook Inlet gas development and production, would operate independently from any future gas line from the North Slope, instead just exporting gas from the Cook Inlet basin.
During presentations to the board of the Alaska Industrial Development and Export Authority, or AIDEA, on Sept. 25, WesPac and Resource Energy executives talked about their companies’ LNG development concepts.
WesPac
WesPac Senior Vice President Brad Barnds told the AIDEA board that his company proposes a two-phase project, with the first phase involving a small-scale plant that would process about 25 million cubic feet per day of Cook Inlet gas, outputting the LNG into specialized LNG containers for shipment by rail, truck or boat to Alaska locations. Phase 2 would be a much larger 150 million cubic-feet-per-day system, with facilities for loading LNG into LNG tankers for export, as well as continuing the container-based shipments within Alaska.
Barnds said that New York-based WesPac specializes in infrastructure development and has extensive experience of LNG facility construction. Owned by Oaktree Capital and Highstar Capital, the company has access to major private funding, he said. In recent years WesPac has been involved in discussions with Alaska utilities over the potential shipment of LNG from the south, to bolster declining Cook Inlet gas supplies. But, with an unexpectedly rapid turnaround in the Cook Inlet gas industry, the company is now pursuing an Alaska LNG production option, Barnds said.
Barnds said that his company has already negotiated an agreement with a Cook Inlet gas producer on terms for the purchase of a 100 percent working interest in sufficient gas reserves to meet the entire supply for the WesPac LNG project “on a long-term basis.” That would give WesPac control over the cost of its gas supplies and, with the company also able to manage the shipment of its produced LNG, the LNG market would be the only significant uncertainty in WesPac’s business model.
REI
Resources Energy Inc., or REI, on the other hand has a prime focus on exporting LNG to Japan, to meet some of Japan’s high gas demand following the 2011 Fukushima nuclear disaster, Mary Ann Pease, REI’s general manager and vice president in Alaska, told the AIDEA board. REI consists of a consortium of Japanese industrial companies, gas companies and government entities, interested in building, owning and operating a Cook Inlet LNG plant, with purpose of delivering LNG to Japan in a timely manner and at an acceptable price, Pease later told Petroleum News.
With a 1 million ton-per-year LNG capacity, the facility would process about 150 million to 160 million cubic feet per day of Cook Inlet gas, Pease said. And Japan has committed to the purchase of gas from Cook Inlet only if the local in-state gas needs can be met, she said.
Pease also commented that a gas-supply linkage with Japan would prove particularly fortuitous, because Japanese gas demand peaks in the summer, while Alaska demand peaks in the winter. REI’s proposed facility would have its own power plant, with the possibility of delivering any excess power into the Alaska Railbelt power grid, Pease said.
WesPac: ideal site
Barnds explained that Port MacKenzie is ideally located for the WesPac project, given its access to road, rail and marine transportation. However, rail access assumes completion of a rail extension that the Mat-Su Borough and the Alaska Railroad are in the process of constructing to the port from the existing railroad line at Houston. A 16-inch gas line would connect the LNG facility to an existing nearby gas transmission line operated by Enstar Natural Gas Co.
WesPac is particularly interested in using containers to ship LNG to Fairbanks by rail or truck. The company sees this as an alternative to shipping LNG from the North Slope, as is envisaged under the Interior Energy Project, a project for the supply of gas to Fairbanks and the Alaska Interior that is receiving state funding assistance through AIDEA.
Barnds said that the phase 1 WesPac project could deliver LNG by container to a wide variety of destinations in rural Alaska, as an alternative energy source to expensive diesel fuel, and that, without any need for state funding assistance, the company could deliver LNG to Fairbanks at a price of between $14.37 and $14.57 per thousand cubic feet. The Interior Energy Project has set a target maximum delivered price of $15 per thousand cubic feet in Fairbanks for its North Slope gas.
Barnds commented that the viability of gas supplies to Fairbanks would depend on the availability of adequate gas storage facilities in the city, to accommodate the wide swings in gas demand between summer and winter. Perhaps the state could assist the city with the establishment of the necessary storage, he suggested.
Fast-track phase 1
Because phase 1 of the WesPac project only involves the production of gas for use within Alaska, the project would not require a Federal Energy Regulatory Commission license, thus greatly simplifying the permitting requirements, Barnds said. And, by using off-the-shelf LNG plant components, the project could be fast tracked, potentially coming online in 2017. The phase 1 project would cost in excess of $600 million, Barnds said.
Michael Cox, a WesPac executive who has been working on the company’s development plan in Alaska, said that the phase 1 facility would occupy a site directly behind the existing Port MacKenzie structures, sharing the use of the port with other organizations. However, the phase 2 project, with a need for an LNG pipeline across the port for connection to LNG tanker vessels, would involve WesPac taking over the entire dock, Cox said.
Barnds also commented that, with an LNG storage tank on site and the possibility of regasifying some of the gas in that tank, the phase 1 project could also act as a backup gas storage facility for Southcentral Alaska gas and power utilities, with the possibility of delivering up to 120 million cubic feet per day of gas to temporarily support peak winter gas demand.
Another intriguing possibility would be the supply of LNG for vessels that have converted to the use of natural gas as a fuel. TOTE, the shipping line that operates cargo vessels to Alaska, is converting its fleet to use LNG - WesPac has been discussing LNG fueling options with TOTE, including the possibility of fueling operations in Cook Inlet for vessels plying the Alaska route, Barnds said.
REI: enough gas reserves
Pease said that REI plans to build its LNG facility near the existing Port Mackenzie site, but with its own dedicated port facility for loading LNG onto about two tankers per week for shipment to Japan. REI has completed a confidential Cook Inlet gas reserves analysis and has concluded that the planned LNG facility would require about 35 percent of proved and probable gas reserves in the Cook Inlet basin over a period of 20 to 25 years, Pease said.
The facility would provide a much-needed market outlet for Cook Inlet gas, supporting the continuing development of Cook Inlet gas fields, and thus having a moderating influence on future Cook Inlet gas prices, Pease said.
She said that REI has hired engineering firm KBR to carry out a feasibility study for the REI project. The results of that study, due for completion in October, will provide clarity over some of the project details. KBR is a worldwide expert in LNG manufacturing, with experience of building LNG plants around the world, Pease said.
Pease also said that REI has a memorandum of understanding with AIDEA to share the costs of an evaluation of how the REI project may support both the competitive development of Cook Inlet gas and LNG contract pricing. That study will help AIDEA assess whether to participate in the project.
Preliminary economics
Meantime REI has developed some preliminary economics for the project and has begun the process for acquiring a facility site. The company has estimated the total cost of the facility at about $1.35 billion, with about $1.5 billion of investment needed to bring aggregated gas supplies from Cook Inlet to market over a 20-year period, Pease said. REI anticipates the plant going into operation prior to 2020, she said.
REI is also holding discussions with a “very large company based in Houston” as a potential operator of the LNG facility and as an aggregator of the gas supplies for the facility, Pease said.
By the end of this year REI anticipates having conditional agreements with Japanese and U.S. partners, including conditional LNG offtake agreements. And REI anticipates having the pieces in place to start moving the project forward in January or February, Pease said.
Pease emphasized that she does not view the REI project as being in competition with a project to bring North Slope gas by pipeline to tidewater in the Cook Inlet. There is more than enough demand for LNG in Asia to support both projects, she said.
Although not mentioned during the AIDEA board meeting, there are two existing facilities for the export of Cook Inlet gas. An LNG plant at Nikiski, on the east side of the Cook Inlet, is owned and operated by ConocoPhillips and is primarily used to export gas from that company’s aging North Cook Inlet gas field. A mothballed fertilizer plant, also at Nikiski, could also provide a market outlet for Cook Inlet gas - Agrium Inc., the plant’s owner, has been considering restarting that plant.
