By Tim Bradner
Alaska Journal of Commerce

ConocoPhillips Alaska Inc. and Marathon Oil Co. are criticizing a state of Alaska proposal that the two companies be required to operate the Kenai gas liquefaction plant they own as an open-access facility with a requirement to process gas from competitors as liquefied natural gas, or LNG.

The state made the request to the U.S. Department of Energy in the federal agency's consideration of a two-year extension of the federal export permit for the Kenai LNG plant owned by ConocoPhillips and Marathon.

The current export permit for the plant expires in 2009. The Kenai facility, built in 1969, is the only U.S. LNG export plant.

Open access is an issue that must be addressed by the Federal Energy Regulatory Commission rather than the DOE, the two companies said in an answer to the state's request filed in May. ConocoPhillips and Marathon also noted that the requirement is unprecedented for an LNG project since FERC does not impose open-access requirements on any liquefied gas receiving terminal in the Lower 48 states.

The companies also said the state was unclear in its request as to whether ConocoPhillips and Marathon would be required to also use LNG tankers the companies own to transport and market the liquefied gas on behalf of others. Alternatively, if the state wants the two companies to guarantee they will purchase gas from other suppliers, there will be practical limits because of plant capacity constraints. Also, commercial deals are best left as voluntary arms-length negotiations between the affected parties, the companies said.

The open-access request came about because some Cook Inlet explorers and small producers have complained that they are constrained by the “lumpy” nature of the local utility has market, with contracts coming open every few years. The LNG plant is supplied by gas fields owned by ConocoPhillips and Marathon, which own the plant. Agrium Corp., which owns a fertilizer plant near the LNG plant and uses gas as a feedstock, operates now on a seasonal basis and is planning either to close the plant or convert to coal as a feedstock.

In a related developed, the DOE granted intervenor status June 5 to several groups protesting the pending LNG export license renewal. Requesting intervention were Chugach Electric Association and Enstar Natural Gas Co., two regional utilities, as well as Agrium, local refiner Tesoro Alaska Petroleum and Chevron Corp., another Cook Inlet producer. The agency turned down a request by the state of Alaska and Tesoro for a trial-type proceeding, although it reserved the option to order additional proceedings.

The state of Alaska and the Alaska Oil and Gas Conservation Commission are also intervenors in the proceedings.

ConocoPhillips and Marathon asked DOE not to grant intervenor status to Agrium, Tesoro and Chevron, arguing that the entities sought to protect private commercial interests in a public interest evaluation of LNG exports conducted by the federal agency. The DOE disagreed, however, stating that the three entities will be affected by continued gas exports, Agrium and Tesoro as local purchasers of gas, and Chevron as a competing producer.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.