State still working with BP, ExxonMobil to refine AK LNG economics

  • Officials from Gov. Michael J. Dunleavy’s office along with Natural Resources Commissioner Corri Feige and Revenue Commissioner Bruce Tangeman, at right, are planning a trip to China next month to discuss the future of the state’s role in the project with officials from Sinopec, the Bank of China and China Investment Corp. (Photo/Becky Bohrer/AP)

New conclusions regarding the viability of the $43 billion Alaska LNG Project are still several weeks away from being made public, according to officials from the state agency leading the work.

Interim Alaska Gasline Development Corp. President Joe Dubler said the state, BP and ExxonMobil have “preliminary answers” to the competitive assessment they are doing of the Alaska LNG Project and those initial results are being further vetted and analyzed before final conclusions are released.

AGDC announced March 8 it had signed a memorandum of understanding with BP and ExxonMobil to assist the state corporation in finding ways to bring project costs down and get it through the federal regulatory process as smoothly as possible.

Brett Huber, a senior advisor to Gov. Michael J. Dunleavy, said March 14 that AGDC, in consultation with the producer companies and the state Revenue Department would be conducting a 60-day review of the project to determine the state’s path forward.

“We’ve agreed on inputs; we’ve agreed on the mechanics. So we’re using that model to finalize the future of Alaska LNG and what we think the competitive prospects are for the project,” Dubler said during AGDC’s May 22 board of directors meeting.

Dunleavy has long been critical of former Gov. Bill Walker’s plan for a state-led Alaska LNG Project. He made it clear soon after being elected last fall that his administration would slow the pace of the project and try to bring the major oil companies back into the fold.

In 2016, the international energy consulting firm Wood Mackenzie concluded the Alaska LNG Project likely wasn’t economic if developed by Alaska’s major producers, as first envisioned, in part because of the high internal return requirements oil companies typically have. However, a state-led project with federal tax exemptions could be viable, Wood Mackenzie said at the time.

BP and ExxonMobil have major interests in seeing a successful Alaska LNG Project come to fruition. They combined to invest upwards of $4 billion between 2012 and 2016 to develop the North Slope Point Thomson natural gas field, which would be one of the main sources of gas for the project; Prudhoe Bay is the other. They also hold collective rights to approximately 70 percent — not counting the state’s royalty stake — of the 35 trillion cubic feet of gas expected to be available for sale through the project.

The companies also signed separate and confidential gas sales precedent agreements with AGDC last year that outline the terms — including price — under which they would sell gas into the project.

AGDC and the companies are also revisiting the $43 billion cost estimate, which is about three years old, to see if technological advancements and market conditions could bring it down. Spokesman Jesse Carlstrom said via email that potential cost savings have been identified primarily in the construction of the facilities for the project.

Approximately $9 billion of the total project estimate is a contingency for cost overruns.

Dubler added that corporation leaders who attended the LNG2019 in Shanghai in early April met with LNG shippers, investors, builders and customers that could be involved in Alaska LNG. He said the prospective participants were comfortable with the state’s new plan to slow the project and not start construction as soon as the Alaska LNG environmental impact statement is finished, likely in mid-2020.

“We’re trying to find potential partners to get the state out of the driver’s seat and get other people in,” Dubler said.

Officials from the governor’s office along with Natural Resources Commissioner Corri Feige and Revenue Commissioner Bruce Tangeman are planning a trip to China next month to discuss the future of the state’s role in the project with officials from Sinopec, the Bank of China and China Investment Corp., according to Dubler.

The state-owned oil giant and financial companies signed a nonbinding joint development agreement with AGDC in November 2017 to advance the prospect of financing up to 75 percent of the project in exchange up to 75 percent of the LNG it produces.

LNG exports to China have declined dramatically this year after retaliatory tariffs were imposed and are now scheduled to increase from 10 percent to 25 percent on June 1.

Dubler reiterated that the administration feels a 75 percent stake in the project is too much for one investor and wants to spread potential investment more broadly.

“We think that once we get the (Federal Energy Regulatory Commission) permitting completed it will open up the door for a lot more different types of firms and industries looking to invest in this project,” he said.

FERC is scheduled to release the draft Alaska LNG environmental impact statement, or EIS, next month. AGDC Program Management Vice President said during the meeting that the corporation is anticipating a 90-day public comment period for the draft document, that will distill the roughly 150,000 pages of environmental, socioeconomic, and engineering data AGDC has submitted to FERC into a roughly 4,000-page EIS.

Elwood Brehmer can be reached at [email protected].

05/24/2019 - 1:19pm