AGDC board hears project cost dropping

  • Alaska Gasline Development Corp. President Keith Meyer and Gov. Bill Walker are seen at a press conference on Sept. 30, 2016, to discuss their meetings with potential Asian markets for Alaska's LNG. Meyer told the AGDC board of directors on Feb. 9 that the cost estimate for the massive project is in the range of $37 billion to $45 billion, much less than preliminary estimates of $45 billion to $65 billion. (Photo by Rashah McChesney)

There is a $102 million spending plan for Alaska’s gasline projects.

The Alaska Gasline Development Corp. board of directors unanimously approved the budget at its Feb. 9 meeting in Anchorage. The plan would exhaust the state’s two gasline funds over the next 18 months or so.

The board also heard from AGDC President Keith Meyer that cost estimates for the Alaska LNG Project — regularly characterized in the past as $45 billion to $65 billion — are dropping.

The three major North Slope producers and the state spent about $600 million over two-plus years to study the project’s environmental impacts and value engineer its cost down.

That effort was largely successful, as former project leader Steve Butt of ExxonMobil said late last year that the revised Alaska LNG capital estimate under the equity partner structure was “towards the lower end of the price range.”

Meyer said during the Feb. 9 meeting that the final price for the full-size, 20 million tons per year LNG export plan would be “north of $37 billion and south of $45 (billion).”

In an interview, he said the final cost will depend largely on the financing partners the state is able to secure and the rates of return they require.

Since taking the helm at AGDC last June Meyer has emphasized the importance and ability for the project to attract lower, “infrastructure” rates of return from investors looking for long-term stable investments, as opposed to the higher, 12-plus percent returns oil and gas companies typically seek for their equity.

To what level a state-owned project can secure tax-exempt status from the Internal Revenue Service will also impact the final Alaska LNG Project cost.

Phasing the project to match market demand is another subtle change AGDC has floated in recent weeks.

The current three-LNG train plant design and construction plan calls for installing and starting each train about a year apart. Spreading the LNG plant construction over a longer period would up the per-unit LNG cost initially, but also keep the state from overbuilding, Meyer noted.

“The market will determine the configuration of the project,” Meyer said.

He estimated the cost to start one 6.5 million tons per year LNG train at about $20 billion, including the North Slope gas treatment plant, 800-mile pipeline and other fixed costs.

“I want to start thinking about this as a $20 billion project as opposed to a $40 billion project,” he said in an interview.

The $102 million spending plan is what remains from previous appropriations to advance the Alaska LNG Project and the smaller Alaska Stand Alone Pipeline project, or ASAP, which is a backup line focused on getting natural gas to in-state customers.

About $26 million is left in the ASAP fund from a 2013 appropriation of $355 million. Legislators pulled $157 million from the ASAP fund and used it for school funding in 2015 when the state’s budget deficit exploded and Gov. Bill Walker tussled with Republican leaders in the Legislature over his ideas for the project.

The other $76 million is in the Alaska LNG Project fund and is already dedicated to the large project being pursued by the state-owned corporation.

AGDC President Keith Meyer said the corporation will not be asking for additional funding from the Legislature this year — which must resolve the state’s nearly $3 billion budget deficit soon — but it will request a reappropriation of $14 million this year from the ASAP fund to the Alaska LNG fund so the money can legally be spent on the large project.

The remaining cash in the ASAP fund will go toward finishing the federal permitting process for the ASAP project over the next year, which also has significant value for the larger project, AGDC officials told legislators in hearings in late January.

The $100 million-plus, two-year FERC licensing process will require additional funding from the Legislature in early 2018, at which point Meyer hopes to have customers lined up to prove the project’s viability.

Legislators have expressed bipartisan hesitancy in funding the project further since the Walker administration said the state would take the lead role in the daunting endeavor from it former equity partners, BP, ConocoPhillips and ExxonMobil.

Also late last month BP agreed to support the state’s Alaska LNG effort in a reduced role from the previous joint-venture partnership.

Meyer said the rest of 2017 will be spent attracting Asian utility customers to the project, as well as applying for the Alaska LNG Project’s official license to operate from the Federal Energy Regulatory Commission, which AGDC hopes to submit in June.

AGDC has an Alaska LNG Summit planned for March 1-6 to bring potential customers to Alaska and show them the North Slope and LNG plant site in Nikiski as well as provide briefings on the project from state agencies, BP, ConocoPhillips and others. During a Feb. 14 Senate Finance Committee hearing he said at least 10 companies interested in buying from or into the project will be represented at the event.

Corporate officials have also noted the prospective customer attendees will pay their own way from Asia to Alaska and back.

AGDC will also be looking in the coming year to contract with a financial advisor firm with experience in the LNG industry to make sure the multiple customer and financing contracts needed to support the project are compatible, according to Meyer.

Finally, on the technical side, the corporation is in talks with large engineering, procurement and construction, or EPC, firms that could provide a final cost estimate in 2018 and eventually manage the construction.

Elwood Brehmer can be reached at [email protected].

02/16/2017 - 10:50am