Japanese company sees faster LNG route at smaller scale

A Japanese company interested in investing in an Alaska liquefied natural gas plant believes the project could be done at a smaller scale, with less risk, and faster than a larger project being planned by North Slope producers.

Resources Energy Inc. of Japan has initiated a feasibility study of an independently-owned, liquefied natural gas export project in Southcentral Alaska. The study, which will be completed in late March or April, is being done under terms of a cooperation agreement REI has signed with the State of Alaska.

REI’s president, Shun-ichi Shimizu, said he believes a project could be built to start at a volume of 5 million tons of LNG per year, or even less, to establish a position in the market. Then the project could be expanded over time to a total of 20 million tons per year. This is the way most LNG projects start, he said in an interview.

In contrast, the project being planned by three North Slope producers and TransCanada Corp. is to build a larger project that would produce 18 million to 20 million tons per year of LNG almost from the start. That volume is needed to achieve the economies of scale needed to pay the huge costs, which are now estimated at between $45 billion and $65 billion, the companies have said.

Shimizu, a retired senior executive with Japan’s energy industry, has previously led development of large LNG projects in Indonesia. REI, a new company, is working with a group of Japanese municipalities and manufacturing firms who want to import more LNG for power generation and are seeking access to their own sources of LNG.

Hyogo Prefecture initiated the effort. Shimizu said was asked by Hyogo officials in early 2011 to lead a team surveying potential LNG sources. The team settled on Alaska as the best source.

REI believes a smaller size of the project envisioned by REI would allow it to fit more easily into the Asia LNG market, and also to be done quicker, by 2019 or 2020. Many of the critical components of a smaller-scale project are more readily available and can be ordered and delivered quickly, and with less risk on cost, Shimizu said.

The producers’ project, because of its large scale, is expected to take longer. If the producers’ project is built as now planned it would be one of the largest LNG projects in the world and would entail big risks, mainly because of its size. 

On the other hand, the REI project at a smaller scale would still have to work with a large-diameter pipeline built from the North Slope. The pipeline is a major part of the overall cost of the gas and LNG project along with a large gas treatment plant on the North Slope.

Shimizu was in Alaska in December to meet with state officials and sign the cooperation agreement. Part of the feasibility study now under way would determine whether Valdez or Nikiski, on the Kenai Peninsula, would be more suitable as a terminus of the gas pipeline and the site of an LNG plant.

The fast-track timing is critical.

“We see 2020 as a critical year for having this project on line in view of the other projects lining up to supply the Asia market,” said Mary Ann Pease, the company’s vice president and general manager.

Pease said REI could not identify its partners in funding the feasibility study but said that for the study itself, Toyo Engineering Corp., Merlin Associates and Air Products and Chemicals Inc. have been contracted to do work on the LNG plant feasibility, and that Japan Oil Engineering Co. Ltd is working on an assessment of upstream gas production issues.

As for the pipeline, Shimizu said REI could work either with TransCanada Corp., which has done its own studies of a 48-inch North Slope gas pipeline under an agreement with the State of Alaska, or with the state-owned Alaska Gasline Development Corp.

The agreement with the state was signed with the Alaska Gas Pipeline Project Office, a part of the Department of Natural Resources, and provides for the state to assist REI in various ways such as providing information and facilitating introductions to North Slope producers and others.

The agreement is similar to Memorandums of Understanding signed with other entities in past years, such as the Alaska Gasline Port Authority. It does not obligate the state to anything that it wouldn’t provide to any party interested in Alaska resources, but the Japanese company felt it was important as a symbolic gesture, a signal that the state is willing to work with the company.

If the feasibility study is positive and the company is able to put together a consortium of Japanese companies willing to invest, REI will be back to the state later this spring in hopes of getting a more definitive agreement.

One of the reasons for Gov. Sean Parnell’s caution on REI is that the governor does not want to appear to favor Japanese LNG buyers over those from Korea or other Asian nations, administration officials have said on background.

Shimizu said REI is open to non-Japanese partners joining the consortium as investors or customers.

“We do not seek a monopoly, but we feel someone has to go first to develop this project,” he said.

Although REI’s initial interest is in developing and owning the LNG plant and being involved in the LNG ocean carriers, the company could also be an investor in the gas pipeline or even “upstream” facilities on the North Slope, Pease said.

The company had also planned to bid in the state’s early December area-wide lease sale on the North Slope but opted not to do so because of uncertainties over whether the cooperation agreement with the state would be signed, Pease said. “However, we are extremely interested in upstream investments, either through acquisitions, farm-ins or bidding in next year’s state lease sale,” she said. “Not bidding in the December sale may be beneficial in the longer-term because we may be in a better position on upstream investment after the feasibility study is completed this spring.”

Meanwhile, Parnell is continuing to court potential Asian LNG buyers. Parnell met with senior Korean gas officials in Juneau in December to discuss opportunities to export large volumes of Alaska liquefied natural gas to Asia.

The meetings were held with Kangsoo Choo, the CEO and president of Korea Gas Corp., or KOGAS.

The Juneau meeting followed up on a meeting in September between Parnell and Choo, along with prior meetings between Natural Resources Commissioner Dan Sullivan and other KOGAS officials.

The governor first met with Choo during a September trade mission to South Korea and Japan to promote Alaska LNG export opportunities. Sullivan met with high-level KOGAS officials in Asia prior to the governor’s trip.

KOGAS is the world’s largest LNG buyer, operating three LNG terminals and pipelines to supply gas to power plants, gas utilities and other buyers. The company has partnerships in LNG projects and producing fields around the world.

Parnell and his officials are holding meetings with KOGAS and a variety of other potential buyers to discuss the comparative advantages of Alaska’s gas, and to provide updates on the LNG export project.

“These efforts are critical because an Alaska project must compete with other large-scale LNG projects under development around the world,” Parnell said in a statement. “We have stability and reliability working in our favor, and a vast untapped supply, yet we must remain aware of proposed projects in other areas with access to the Pacific Rim.”

Tim Bradner can be reached at [email protected].

01/16/2013 - 11:03am