Summer AK LNG fieldwork winds down
KENAI — Fieldwork in Nikiski is winding down and future plans are uncertain for the Alaska LNG Project as the summer slides into autumn.
An evaluation from consulting firm Wood McKenzie presented Aug. 24 to the Legislature’s Joint Resources Committee ranked the project as one of the least economically competitive liquefied natural gas projects in the world at this time. Natural gas prices worldwide have fallen due to a flooded market, and the project as presently planned is too expensive to balance out, the report concluded.
The three producer partners, BP, ExxonMobil and ConocoPhillips, responded by saying they did not want to spend any more on the Alaska LNG Project in the next phase. With the pre-front end engineering and design ongoing, the four project partners are spending approximately $30 million per month, according to figures presented to the Joint Resources Committee Aug. 24 from Project Manager Steve Butt. Costs will increase throughout the remainder of the process. The state of Alaska is now planning to take the lead role, though the technicalities of that may present challenges.
Gov. Bill Walker said in an Aug. 25 press release the state plans to move forward with the project toward a January 2017 application to the Federal Energy Regulatory Commission.
“The project team, which includes our industry partners, have spent several years and completed over $500 million in engineering, permitting and necessary work to complete pre-FEED,” Walker said in the press release, referring to an acronym for pre-front end engineering and design used by the project’ managers. “Now is not the time to shelve that excellent work and start again at a future date.”
While the governor and state administration are addressing potential strategies for transitioning to state leadership — including whether the state can work out cost-reducing tax exemptions for the project and whether it can solicit third-party investors to help underwrite it — residents of the Kenai Peninsula are carefully watching what administrative and timeline changes would mean on the ground.
Nikiski residents have lived with geotechnical and geophysical work in their area for three summers as well as more than 600 acres of land being purchased for the proposed liquefaction plant near the bluff.
They have watched plans for the Kenai Spur Highway to be moved and waited for a final decision to be selected from a number of options the project managers presented to them in fall 2015 and many have weighed in on thousands of pages of documents of data compiled on the project and the environment of its proposed location, called Resource Reports, submitted to FERC.
However, contractors completing the fieldwork and land purchases were coordinated through the Alaska LNG Project, LLC, a holding company that does not include the state’s Alaska Gasline Development Corporation. In the future, the state will apply for FERC approval alone, so some details remain to be worked out, said Larry Persily, special assistant to Kenai Peninsula Borough Mayor Mike Navarre, who consults on the Alaska LNG Project.
Among these are getting the state included in the LNG export authorization, making North Slope gas available to the state to sell, designating the state as the sole applicant and transferring the completed technical work and purchased land in Nikiski to the state because FERC approval requires site control.
“The state is either going to have to buy the land, get an auction on the land, get a consignment on the land, something so they can go to FERC and say, ‘Here’s our application, and here’s the paper that proves we have the right to use that land,’” Persily said at a public meeting held Sept. 1 at the North Peninsula Recreation Center in Nikiski. “… If the state needs to pay for it, they will probably need an appropriation from the Legislature next year because (the Alaska Gasline Development Corporation) does not have enough money to buy the land from the companies.”
Although the state will take over the lead and put its name on the application, the producer partners still plan to stay involved. ExxonMobil, the partner with the most significant stake in the project, will not withdraw its support in the remainder of the pre-FEED process, said Aaron Stryk, a spokesman for the company.
“We’re going to complete our pre-FEED activities — we’re committed to those deliverables,” Stryk said. “Beyond that, the future role in the development of the North Slope gas is going to be development of Prudhoe Bay and Point Thomson.”
Once the pre-FEED process is complete, the company will focus on the development of the natural gas on the North Slope rather than the participation in the pipeline and liquefaction plant.
The partners and the state will work on scheduling handover sessions in the fourth quarter of 2016, said Bill McMahon, senior commercial advisor for ExxonMobil, in an Aug. 25 presentation to the Joint Resources Committee.
The fieldwork is nearly finished for the year, and a planned aquifer pump test will not take place. Project managers had initially planned a test in August that would draw millions of gallons of water out of the aquifers beneath Nikiski to test the area’s ability to provide water to a proposed plant during construction and in case of fires.
After permitting delays, the test was pushed back to September, and with winter closing in and a lack of information about existing groundwater conditions, the test has been cancelled for this year.
Some work is still going on, said Josselyn O’Connor, the community stakeholder liaison for the project.
“We plan to finish installing wells and wrap-up our water quality sampling program this fall as planned,” O’Connor said in an email.
The relocation of the Kenai Spur Highway remains a loose end. Persily said at the meeting the borough administration intends to ask the project managers to pick a highway route in its comments on the resource reports.
“Our comment is going to be … there’s no need to stall on selecting a preferred route,” he said.
The project managers have now submitted Resource Reports 1–11 and Resource Report 13, which are available for public review through the FERC website at www.ferc.gov.
Elizabeth Earl can be reached at [email protected].