A summer field season is under way for the North Slope to Southcentral liquefied natural gas project, but the companies involved have not made the multimillion dollar commercial commitment Alaska Gov. Sean Parnell was looking for at this stage of the project.
In his January State of the State address, the governor called on the project companies — BP, ConocoPhillips, ExxonMobil and TransCanada — to meet three benchmarks this year: to finalize project details of concept selection by Feb. 15; do a full summer field season this year; and make a commercial agreement on the pre-FEED, front-end engineering and design.
The second and third items were pegged for spring.
On June 21, the first day of summer, the companies provided an update on the Southcentral LNG project, calling the summer field work which was under way part of activities “associated with a staged pre-FEED.”
The companies also said they had “completed commercial agreements to support both the summer field work and other activities to further advance the project.”
In a June 21 statement Parnell acknowledged that the companies had met the first two benchmarks, but said the spending level the companies discussed, $80 million to $100 million from March 2012 through the end of 2013, “does not reflect that the companies have budgeted or allocated hundreds of millions of dollars related to pre-FEED, which is what they have previously indicated is required for this phase of the project. In short, the companies are making progress, but not moving as quickly as Alaskans expect.”
The hundreds of millions
A presentation by the companies to the Alaska Legislature on the Southcentral Alaska LNG project in February included a timeline for the project listing costs associated with steps in the project: tens of millions through concept selection (the stage completed in mid-February); hundreds of millions in the pre-FEED step following concept selection; billions of dollars in the FEED phase; and tens of billions in the engineering, procurement and construction stage following a decision to build the project.
The companies have pegged total project cost at $45 billion to $65 billion-plus.
In their June 21 release the companies said the work they have done since March 2012 “builds upon more than $700 million in past work by the collective companies,” including the 2001-02 joint Alaska Gas Producer Pipeline Team, the Denali gas pipeline project (a joint venture by BP and ConocoPhillips) and the Alaska Pipeline Project (TransCanada and ExxonMobil). The companies said the $700 million includes the state’s contribution through the Alaska Gasline Inducement Act.
Parnell said the state would work with the companies as they move forward “to help expedite engineering and permitting work required for the project.”
The governor noted that the in-state gas pipeline project under the Alaska Gasline Development Corp. plans an open season in the fourth quarter of 2014, and said the state “continues to aggressively promote Alaska LNG to global customers and investors, and is working closely with federal regulators to expedite the permitting of a gas commercialization project.”
Parnell also said that through the Interior energy project, “the state is moving aggressively to build out gas infrastructure to get gas to Alaskans.”
Moving forward
In their release the companies also said “a competitive, predictable and durable oil and gas fiscal environment will be required for a project of this unprecedented scale, complexity and cost to compete in global energy markets.”
In response to the governor’s remarks, the North Slope producers emphasized in emailed responses that they continue to move forward on the project.
BP said: “The Alaska South Central LNG project is important to Alaska and important to BP. The State of Alaska plays a huge role in making this project commercially viable and enabling progress. BP and the other companies continue to make progress in moving this project forward as demonstrated by our commitment of 350 people and our anticipated investment of $100 million in the project by year-end. Our commitment is to continue to work together with the state, ConocoPhillips, ExxonMobil, and TransCanada with the goal of moving the project forward.”
ConocoPhillips said: “We are on course to have spent $80 to $100 million by year end 2013. That is on top of the historical $700 million the four companies have spent in efforts to commercialize ANS gas. We continue working to move the project forward and are undertaking activities like summer field work that normally would be considered part of pre-FEED.”
ExxonMobil said: “The SCLNG project continues to progress on schedule, utilizing a staged, gated process appropriate for a mega-project of this nature. With concept selection completed earlier this year, the project has now commenced gathering critical field data in order to stay on schedule. We will work closely with the state to maintain momentum and continue moving forward.”
The gated approach
The companies are working the project in what they’ve described as “a phased and gated approach,” Steve Butt, ExxonMobil Development Corp. senior project manager, told legislators in a February presentation.
With a “phased and gated approach,” he said, “... we constantly try to reduce uncertainty as we increase our commitment.”
“Right now there’s a lot of uncertainty: We don’t have clarity on some of the permitting questions; we don’t have clarity on some of the market issues; we’re still in a very early phase of this project.”
The concept has been defined, he said, with some 300 people working on the project and $25 million spent over the last year.
But moving forward, he said, you go from spending tens of millions to spending hundreds of millions, and with the people involved going from hundreds to thousands. That’s why a phased and gated process is used, Butt said.
