Legislature gets first update on pros, cons of AK LNG Project

Legislators got their first briefing of the session on the Alaska LNG Project on Jan. 25 direct from the project’s lead manager, ExxonMobil’s Steve Butt.

In presentations to the House and Senate Resource committees, Butt implored legislators to view themselves as the board of directors for the state, as a 25 percent owner of the $45 billion to $65 billion prospective development.

“We view ourselves as kind of a project organizer evaluating technical and economic viability of the AK LNG Project; does it make sense to the investors?” he said to House Resource members.

In a time of a depressed global LNG market — spot prices have fallen by some 50 percent over the last three years — Butt outlined some of the simple but not-to-be understated benefits of Alaska’s project and how it compares to others around the world competing for market share.

First, Alaska’s North Slope resource of 32 trillion cubic feet, or tcf, of natural gas is well defined and largely developed. The gas beneath Prudhoe Bay has been captured and re-injected many times to maximize oil production and the wells and other infrastructure needed to retrieve the gas from the reservoir are in place. 

ExxonMobil and BP have spent roughly $4 billion developing Point Thomson to the east of Prudhoe Bay to supply about 25 percent of the gas for the AK LNG Project, but that work is also wrapping up as Point Thomson will begin producing about 10,000 barrels of natural gas liquids per day to go into the trans-Alaska Pipeline System this year. Further development will still be needed to equip Point Thomson for gas production and transport to the AK LNG Project, however.

Butt said many other LNG projects worldwide have upstream development costs that Alaska does not. Additionally, the Federal Energy Regulatory Commission, as the federal overseer of the project, enjoys the knowledge of known resources and established infrastructure in its decision-making process, he said.

Alaska’s relatively close location to Asian markets that will likely be the buyers of from the project is a benefit that has been well documented. Shipping LNG from Alaska to Japan, Korea and China is cheaper and faster than from export projects in the Gulf of Mexico or Australia where competing projects are likely to be.

Alaska’s location in the northern hemisphere also allows the project to maximize production efficiency that matches swings in market demand, according to Butt.

LNG is produced by chilling natural gas to minus-260 degrees Fahrenheit, which results in a condensed, easily transportable liquid product. Alaska’s cold, dry climate allows liquefaction plants here to produce 10 percent to 15 percent more LNG than comparably sized plants in the Middle East or other warm locales.

“Buyers are in the northern hemisphere and they want more LNG in the winter — January and February — when the turbo machinery in Alaska is more efficiently generating LNG,” Butt said.

A more efficient process means a more cost-effective project.

Those advantages hopefully offset the AK LNG Project’s big but unavoidable disadvantages, he said, which are the North Slope gas treatment plant and the 800-mile pipeline needed to get the gas to an ice-free port.

The natural gas coming out of Prudhoe Bay is about 12 percent carbon dioxide; a higher carbon dioxide concentration than the gas source for any currently producing LNG project in the world, he noted.

When combined with the 4 percent carbon dioxide gas of Point Thomson, the project will have a blended gas of about 10 percent carbon dioxide makeup. That 10 percent carbon dioxide must be separated from the methane that is the usable natural gas and re-injected into the Prudhoe Bay reservoir.

As a result, the project requires an upstream treatment plant pegged at roughly $15 billion.

“That’s why there are no projects around the world handling this amount of (carbon dioxide) — it’s very expensive,” Butt said to the Senate Resources Committee.

The $15 billion pipeline and associated infrastructure is the other major cost hurdle.

LNG projects have been done with pipelines up to about 400 miles, he said, but Alaska’s would be double that.

Therefore, minimizing cost by maximizing efficiencies in transportation, design and construction is paramount for a project with tremendous overhead in a highly competitive marketplace, Butt emphasized.

Elwood Brehmer can be reached at [email protected].

01/27/2016 - 3:52pm