BP, ConocoPhillips endorse LNG project as best for North Slope gas

BP and ConocoPhillips now believe a major liquefied natural gas project is the best option for marketing North Slope gas, the chief executive officers of the two companies said following meetings with Gov. Sean Parnell Thursday morning.

Robert Dudley of BP, James Mulva of ConocoPhillips and Rex Tillerson of ExxonMobil met with Parnell and then, along with the governor, briefed state legislators on the talks in a separate meeting.

Parnell met with the CEOs to discuss how to align the major Slope producers on a major gas project. ExxonMobil Corp., another major producer, participated in the meetings but did not comment afterward while the leaders of BP and ConocoPhillips said their companies now believe LNG is the best way of marketing gas from the Slope.

“Given the outlook with shale gas in the Lower 48, it looks like LNG has the best potential. We’re not saying the pipeline (to Canada) is impossible,” but a pipeline to southern Alaska to an LNG plant appears to have the best prospects, BP CEO Dudley told reporters following the meetings with Parnell and legislators.

ConocoPhillips’ Mulva agreed with Dudley.

“We believe LNG is the best alternative for North Slope gas, far better than any alternatives,” Mulva said.

Parnell said the three companies have agreed to work with the state on a review of all alternatives including an LNG export project as an alternative to an all-land pipeline from the North Slope to Alberta.

TransCanada and ExxonMobil are now pursuing a land pipeline with state support under the Alaska Gas Inducement Act, or AGIA, but Parnell said an LNG project could be done under the framework of the existing agreement with TransCanada.

AGIA includes a provision that an LNG project can be done as an alternative.

The AGIA contract provides for the state to provide up to $500 million in grants to support engineering and environmental work in return for TransCanada and ExxonMobil meeting certain state requirements on schedules and tariff structure.

AGIA requires TransCanada to file an application for a land pipeline with the U.S. Federal Energy Regulatory Commission this October.

TransCanada vice president Tony Palmer, who attended the noon meeting with legislators but did not participate in the meetings of the CEOs with Parnell, said he supports the new initiative and that the meeting of the three CEOs with Parnell was hugely important.

An LNG alternative would involve a large-diameter, 800-mile pipeline to an LNG plant at a south Alaska port, either at Valdez or near Kenai, on Cook Inlet. ConocoPhillips operates a small LNG plant near Kenai that exports Cook Inlet gas to Asia.

Valdez has also been considered in the past as a possible LNG plant site because of the deep water harbor, and proximity to infrastructure along the existing Trans Alaska Pipeline System and the Valdez Marine Terminal, which ships crude oil.

Cook Inlet is navigable for smaller LNG tankers now used by ConocoPhillips but may have limitations that would impede an expansion of the present LNG plant.

Parnell has been urging the producers to shift their support from an all-land pipeline from Alaska to Alberta to an LNG project to export Alaska gas to Asia. The glut of shale gas in Lower 48 gas markets and continued strong markets for LNG in Asia now make an LNG project more viable than a land pipeline, Parnell has said.

There has been substantial previous work on a large Alaska LNG project as well as previous efforts on an all-land pipeline. In the 1990s BP, ARCO Alaska (now ConocoPhillips), Foothills Pipeline (now TransCanada) along with Marubeni, a major Japanese company, did conceptual feasibility studies of a pipeline to Valdez parallel to TAPS and an LNG plant built adjacent to the Valdez Marine Terminal.

The project did not move forward because the companies felt the Asia LNG market would not be able to absorb sufficient volumes of Alaska LNG to make the project viable.

A separate initiative was led by Yukon Pacific Corp., or YPC, a subsidiary of CSX, a major U.S. transportation company. YPC obtained conditional rights-of-way for the pipeline and a lease for the LNG plant along with a federal LNG export license, but the company was never able to get support from the North Slope producers.

The producers’ and TransCanada’s current work on a land pipeline began in 2001. It followed a failed attempt by an earlier consortium of U.S. utilities and North Slope producers to build a pipeline in the early 1980s. Changes in U.S. gas markets and deregulation of the gas industry made that project uneconomic.

04/20/2012 - 6:32am