ConocoPhillips putting LNG plant in deep freeze

  • The Arctic Sun takes on a load of liquified natural gas bound for Japan in 1998. The shipment was ConocoPhillips’ 1,000th to leave the Nikiski dock. Some 200 more loads left in the ensuing years, but none since 2015 and depressed prices have ConocoPhillips planning to mothball the plant. (Photo/File/Peninsula Clarion)

Unable to find a suitable buyer, ConocoPhillips is preparing to fully shut down its once-renowned Kenai LNG plant.

ConocoPhillips spokeswoman Amy Burnett wrote in a statement Wednesday that the company is preparing to put the plant into long-term shutdown mode this fall.

“The reduced operations will focus on continued preservation of the facilities for future LNG exports,” Burnett wrote.

How long the plant is mothballed will depend on market conditions and right now there are about 30 people working at the LNG plant, 18 of whom are ConocoPhillips employees, she added.

Burnett said the company is currently assessing future staffing needs.

The Kenai facility has been idle for nearly two years, with its last export in the fall of 2015, as depressed global LNG prices have simply pushed it out of the market.

Spot prices for LNG cargos delivered to the East Asia countries the plant has historically supplied were about $5.50 per million British thermal units in May, according to the Federal Energy Regulatory Commission. That is less than the equivalent wholesale price for unprocessed Cook Inlet natural gas in local utility contracts, which is currently in the $7 range.

Last fall ConocoPhillips said it was putting the plant and associated marine terminal up for sale; the company began actively marketing the facilities in January.

Alaska Gasline Development Corp. officials working on the Alaska LNG Project that would put a massive LNG plant adjacent to ConocoPhillips’ said at the time they were interested in the plant but a deal has yet to materialize either with the state-owned corporation or a private party.

Discussions with potential buyers are ongoing, according to Burnett.

The federal Department of Energy export license tied to the Kenai plan expires in February 2018.

The Kenai LNG plant was the world’s largest when it opened in 1969 and has served as a means to strengthen the trade relationship between Alaska and Japan, where most of its cargoes landed. According to ConocoPhillips, the plant has filled LNG tankers with more than 1,300 shipments of cargo over its nearly 50-year life.

LNG exports from the plant were also suspended late in 2012 — despite record-high prices globally — when many state officials feared declining Cook Inlet gas production would not be sufficient to meet local heat and power needs. Exports resumed in May 2014 with a few shipments to Asian customers prior to the global LNG price collapse.

Selling the LNG facilities would pretty much complete ConocoPhillips’ exit from the Cook Inlet gas market. Early in 2016 the company sold off its last stake in Inlet gas reserves when it sold its one-third share of the longstanding Beluga River gas field to Anchorage utilities for $152 million.

Oil and gas industry majors left the Inlet over the past decade as production from maturing fields was declining. Hilcorp Energy and smaller independent companies able to turn profits from smaller fields have since — with the help of state tax incentives — stabilized the Cook Inlet natural gas market and increased production from the basin.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Updated: 
07/13/2017 - 1:40pm

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