Balash heads to Japan with BP to market LNG
Marketing efforts for the Alaska LNG Project have formally started, passing another major milestone.
State Natural Resources Commissioner Joe Balash accompanied BP officials to Asia on the first formal sales trip for the giant project. “These were BP’s meetings. They set them up and handled the invitations, and we were invited to come along,” Balash said.
For the state, the trip’s purpose was to demonstrate the alignment between Alaska and the producer companies, Balash said in an interview before he departed.
“There is a lot of confusion in Asia about Alaska and the opportunities here, so we felt it was important to do this with BP and for us to be seen standing alongside each other. It’s an important way of demonstrating alignment,” Balash said.
Meetings were also to be held in Seoul with KOGAS, Korea’s natural gas company. KOGAS is the world’s largest LNG buyer as a single company but Japan imports more LNG overall, Balash said.
BP’s meetings were just informational but state officials held separate meetings in Tokyo that produced a Memorandum of Cooperation between the state and METI, Japan’s Ministry of Economy, Trade and Industry.
The memorandum sets out a framework for discussions between the state and the Japanese agency intended to facilitate negotiations between private buyers in Japan and the North Slope producers.
It builds on an existing agreement the state signed last January with the Japan Bank for International Cooperation. JBIC is a public financial institution in Japan that plays an important role in financing Japanese foreign investments, and in this case helping secure LNG imports to Japan.
The memorandum itself, signed by METI and Balash, representing the state, notes that, “The Alaska LNG Project has some comparative advantages to other potential suppliers of LNG including proximity, lack of security risks and avoidance of strategic shipping choke points.”
The document also recognizes that Alaska has one of the world’s largest portfolios of undeveloped oil, gas, minerals and renewable resources, and that Alaska has historic status as a “foundation LNG supplier to Japan” through the ConocoPhillips Kenai LNG plant that provided, in 1969, the first shipments of LNG to Japan. The plant continues to ship LNG to Japan made from Cook Inlet natural gas.
In the large project marketing, Balash said each of the producers will be making their own marketing trips for their share of LNG produced by the project. The companies cannot make joint trips because of anti-trust reasons, he said.
The state also came to BP’s meeting because the company may be marketing the state’s gas, as LNG, along with its own. It is too early to say whether the state will accompany the other producers, ConocoPhillips and ExxonMobil, when they make marketing trips.
It’s not yet certain the big project will actually be built. That decision will be made in 2018 or 2019 after further cost estimates, engineering and if permits are acquired.
“It’s still early but we need to open a dialogue with the buyers,” he said.
“There are a lot of reasons why this project should be attractive to them (buyers), among them the geopolitical factors,” such as obtaining LNG from a secure sources that is also relatively close.
Balash said that under the Heads of Agreement signed by the state, producing companies and TransCanada Corp. each of the three producers are obliged to negotiate the sale the state’s 25 percent share of LNG along with their own, and under the same contract terms.
This isn’t for certain, but it’s what the producers have agreed to do if the state prefers.
“We have some big decision to make, whether to ride along on their contracts or strike out on our own,” Balash said.
That would require the state to set up its own LNG marketing group, and the marketing would be done without the benefit of the producers’ experience in selling LNG worldwide.
“We’re in a position to be flexible, but we have to be careful about anti-trust issues,” the commissioner said, meaning that if the state asks the three producers to sell its LNG the information obtained on each company’s marketing will have to be kept confidential from the others, who would also be selling the state’s LNG as a part of their contracts.
Joint ventures like the Alaska LNG Project don’t have to do things this way, Balash said.
“Joint ventures sometimes choose to market as a project, but in that case they set up a separate company staffed by people usually loaned from the owner companies who have to cut their links,” to the sponsor companies, at least as it relates to the marketing.
The main limitation to this is that the marketing group can only sell LNG from the jointly-owned project, so any advantages of negotiating for supply from several sources is lost.
With the Alaska LNG Project, however, the decision was made to have each producer sell its own equity share of LNG, and to be responsible, if the state chooses, for the portion of their production that is the state’s royalty and tax share.
Balash will also accompany BP officials to China to tour an LNG project, 30 percent owned by BP, that is also the world’s largest LNG trucking operation. The commissioner expects to learn a lot from visiting the operation.
“We’re involved in Alaska in our Interior Energy Project, which involves trucking of LNG from the North Slope to Fairbanks. We hope to see this expanded to other communities,” Balash said.