Slope producers align on LNG project

Gov. Sean Parnell announced Friday that the long-running Point Thomson litigation has been settled in an agreement featuring ironclad production requirements with North Slope producers, who also told the governor they have reached alignment on pursuing a major liquid natural gas pipeline to facilitate exports from Southcentral Alaska.

“The news keeps getting better for our state,” Parnell said at a press conference at his Anchorage office. “We’re assuring significant new investment at the field, hydrocarbons into (Trans-Alaska Pipeline System) and a timetable for full-field development.”

Under the settlement, the companies must be producing gas liquids from Point Thomson by the winter of 2015-16 or significant acreage at the field will automatically return to the state. The objective is to reach 10,000 barrels per day in production, Department of Natural Resources Commissioner Dan Sullivan said.

The settlement also requires major infrastructure investment, most notably in a 70,000-barrel capacity “common carrier” pipeline from Point Thomson to TAPS that Sullivan said would utilize the economies of scale and open up the Eastern Slope for production.

“The primary goal was to end the warehousing at Point Thomson of Alaska’s fields and get near-term commitments for production,” Sullivan said. “They must lay out a path for full production and the settlement incentivizes progress toward North Slope gas development.”

Settlement of the Point Thomson litigation, which affects the 8 trillion cubic feet of gas and 200 million barrels of liquid condensates in that field, was necessary before any large gas project moves forward. Point Thomson’s reserves constitute almost one-fourth of the 35 trillion cubic feet of gas reserves identified on the Slope that could underpin a large gas project.

The litigation, which has been under way for seven years and spanned three administrations, revolved around the state’s claims that major Point Thomson leaseowners ExxonMobil, BP and ConocoPhillips and Chevron did not perform on development obligations under the leases. The state had moved to void the leases.

“This is clearly a win for Alaskans,” Parnell said. “Alaskans don’t win when their resources are tied up in litigation. This settlement has real work commitments, real production and real consequences.”

Parnell shared the letter he received Friday from CEOs Rex Tillerson of ExxonMobil, Jim Mulva of ConocoPhillips and Bob Dudley of BP said the three companies have reached agreement on assessing the LNG export project as an alternative to the pipeline to Alberta called for in the Alaska Gasline Inducement Act, or AGIA.

“A southcentral Alaska LNG approach could more closely align with in-state energy demands and needs,” the letter stated. “We are now working together on the gas commercialization project concept selection, which would include an associated timeline and an assessment of major project components including in-state pipeline routes and capacities, global LNG trends and LNG tidewater site locations, among others.”

The alignment between ConocoPhillips and BP with ExxonMobil and TransCanada, the latter two companies who have been exploring the Alberta gasline under AGIA, may require a project plan amendment.

TransCanada, which had $500 million worth of its expenses covered under AGIA, is currently required to file its export permit with the Federal Energy Regulatory Commission by October.

Sullivan said such an amendment to delay that requirement could be done administratively with the approval of him and Department of Revenue Commissioner Bryan Butcher.

The Slope companies have additional benchmarks to achieve by the third quarter of this year on the gasline project, and within the settlement is a provision that the producers can earn additional acreage at Point Thomson if they sanction an LNG project between now and 2016. If the producers don’t agree on a gasline concept before then, they will be required to increase liquids production at Point Thomson.

“The agreement does not guarantee a major gasline, but moves us a significant step forward,” Sullivan said.

Parnell said part of his commitment to the CEOs in exchange for their alignment on commercializing Slope gas through an LNG export project was to address natural gas taxes in the 2013 legislative session.

The letter from the CEOs states, “Unprecedented commitments of capital for gas development will require competitive and stable fiscal terms with the State of Alaska first be established.”

This would be the fourth time companies have worked on an Alaskan LNG project. The first, in the 1970s by El Paso Natural Gas, was intended to ship LNG to the U.S. West Coast. El Paso did not proceed with the project. The second was an effort by Yukon Pacific Corp., a subsidiary of CSX Corp., in the 1980s to build a gas pipeline parallel to the existing Trans Alaska Pipeline System and an LNG plant at Valdez, the terminus of the TAPS line. Yukon Pacific eventually dropped the project when it could not get commitments of gas supply from producers, the company said.

Also in the 1980s the Alaska Natural Gas Transmission System consortium led by Salt Lake City-based Northwest Energy and Foothills Pipe Lines did extensive work on a land pipeline to Alberta following essentially the same route proposed today by Foothills and ExxonMobil. U.S. gas deregulation and the resulting gas supply glut ended the project.

Following the demise of ANGTS, a third LNG effort, in the 1990s, was led by two North Slope producers, ARCO Alaska and BP, that also included a Japanese company, Marubeni and Foothills Pipe Lines (now TransCanada) that also would have had the LNG plant at Valdez. This project was dropped when the group concluded the Asia LNG market could not supply large enough quantities of gas, in competition with other suppliers, to make the Alaska project viable.

As that project wound down in 1999, the producing companies, this time including ExxonMobil, turned their attention to an overland pipeline. Their work led to the current TransCanada and ExxonMobil overland project, and the competing BP and ConocoPhillips Denali project that those companies dropped in 2011.

Updated: 
11/11/2016 - 7:28pm