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Vol. 19, No. 16 Week of April 20, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

Gas exports to restart

DOE issues new export license for ConocoPhillips Kenai Peninsula LNG facility

Alan Bailey

Petroleum News

The U.S. Department of Energy has authorized the renewal of a license for the export of liquefied natural gas from ConocoPhillips’ LNG facility at Nikiski on the Kenai Peninsula to countries that do not have free-trade agreements with the Unites States, ConocoPhillips said April 14. In February the agency issued a similar license for the export of LNG to countries that do have U.S. free-trade agreements. Both licenses run for a period of two years and, individually or in combination, allow for the export of up to 40 billion cubic feet per day of gas.

Start in the spring

ConocoPhillips says that, with the licenses having now been issued, it plans to resume LNG exports from the Cook Inlet basin in the spring. The licenses allow the company to export both its own gas and gas that it is shipping for other entities.

“ConocoPhillips had previously said that it would consider pursuing a new export authorization if local Cook Inlet area gas needs were met and there was sufficient gas available for export,” ConocoPhillips said in an April 14 press release. “During 2013, local utilities executed gas supply agreements securing their supply through at least the first quarter of 2018. The Cook Inlet area gas supply forecast has increased, which is a positive development for local utilities. LNG exports will provide a market opportunity for Cook Inlet gas production in excess of local market demand.”

U.S. Sen. Lisa Murkowski, R-Alaska, expressed her support for the renewal of LNG exports.

“I’m glad ConocoPhillips will be able to add to Alaska’s 40-year history of supplying natural gas to Japan,” Murkowski said. “Today’s announcement by DOE also highlights the growth that’s occurring in Cook Inlet, where there is now ample gas supply to both meet local needs and help out our friends overseas.”

U.S. Sen. Mark Begich, D-Alaska, said that he had urged the Department of Energy to fast-track ConocoPhillips’ application for exports to non-free-trade-agreement countries such as Japan. There is currently a queue of similar applications for planned LNG facilities in the Lower 48.

“This is great news for the cradle of Alaska’s oil and gas industry on the Kenai Peninsula,” Begich said. “With plenty of gas available to meet local needs through at least 2018, we’re seeing the kind of job growth responsible oil and gas development can provide.”

A changing market

Given a recent debate about potential shortages of Southcentral utility gas from the Cook Inlet basin, it may appear counter-intuitive to see the authorization of gas exports from the basin. Indeed, in early 2013 ConocoPhillips, citing uncertainty in the local gas market, mothballed the Nikiski LNG plant when a previous export license expired.

But with companies such as Hilcorp Alaska and Cook Inlet Energy revitalizing Cook Inlet gas production, and with multiple companies exploring in the basin and bringing new gas fields on line, the gas supply situation has changed dramatically in recent years. The Southcentral Alaska gas and power utilities have now all secured contracts to fully meet their gas supply needs through to the first quarter of 2018. And, with Hilcorp having furnished the bulk of those contracts, other companies have been expressing concern about finding markets for new gas, should gas exploration prove fruitful.

In fact, in September 2013 the Alaska Department of Natural Resources, or DNR, wrote a letter to ConocoPhillips, asking the company to apply for a new LNG export license and citing the changes in the Cook Inlet gas market.

Sufficient supplies

In approving the export licenses, the Department of Energy has recognized the turnaround in the Cook Inlet gas industry. The agency, referencing the DNR letter and a DNR report on Cook Inlet gas resources, said that ConocoPhillips had provided “substantial evidence projecting a future supply of natural gas in the Cook Inlet region sufficient to support both the proposed export authorization and regional demand for natural gas during the two-year authorization period.” And, in its analysis for the new license, the Department of Energy also cited a comment by DNR that an operating LNG plant could invigorate the Cook Inlet gas industry by providing a market for gas producers.

DNR had also commented that LNG production provides a vital role in gas supply security in Southcentral Alaska during periods of high winter gas demand, by enabling the diversion for utility use some of the gas otherwise earmarked for LNG manufacture. In addition, by providing a steady market for gas during the summer, when utility demand is low, the LNG plant can ensure the continuity of gas well operation, thus maintaining overall well performance and improving gas resource recovery, DNR had said.

The operation of the LNG plant also provides employment on the Kenai Peninsula.

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