REI advances work for Port MacKenzie LNG

A critical action-item for Resource Energy Inc., or REI, is getting engineering and design work underway this year for its planned 1-million-ton per year liquefied natural gas project at Port MacKenzie, in the Matanuska-Susitna Borough across Knik Arm from Anchorage.

REI also hopes to initiate its pre-application process with the Federal Energy Regulatory Commission later this year, the company’s Alaska manager Mary Ann Pease told Commonwealth North’s energy working group April 24.

Commonwealth North is an Anchorage-based public policy group.

REI is on an aggressive schedule to get its plant into operation by 2019 or 2020 to take advantage of available market opportunities in Japan.

A target date for completion of an environmental impact statement, or EIS, is late 2017, but the company is now discussing the possibility that a full EIS might not be needed, and that a more streamlined environmental assessment could be used.

Those discussions are underway with the Federal Energy Regulatory Commission, Pease said.

Another challenge, however, is that REI has been unable to nail down a gas supplier for its project, although talks are underway with independent companies that have made recent discoveries in Cook Inlet, Pease said.

The supply picture is likely to firm up if the company gets its project into engineering, she said. About 160 million cubic feet per day of gas would be needed for the plant.

REI is important for Cook Inlet because the company represents a major new customer. Independent companies have made new gas discoveries in the Inlet but currently have no customers, she said. Hilcorp Energy, an existing gas producer, has met needs of the regional utilities into 2018, she said.

“Cook Inlet’s potential for gas will remain just that unless there are additional customers for the gas,” she said. “The only other new customer on the horizon is Fairbanks but the amounts of gas needed will be too small to justify the development and exploration for additional gas.”

REI’s plan is for its plant would be built in modules and while an LNG technology supplier has not yet been identified one modular system the company is considering is that of General Electric. That company manufactures LNG units capable of producing 250,000 metric tons per year of liquefied gas.

To get to 1 million tons per year the project would employ four of the GE units as an example, Pease told Commonwealth North.

Capital costs are now estimated to range between $1.2 billion to $1.8 billion, and an additional $1 billion would be needed to purchase the gas needed for the plant, she said.

REI plans to supply LNG to two municipal and regional industrial customers in Japan. The company sees no conflict with the large Alaska LNG Project, Pease said, because REI needs to be in operation much sooner, by 2020, compared with the Alaska LNG goal of 2024 or 2025.

If either the Alaska LNG Project or an alternative state-led gas pipeline is built, then REI plant could become a customer, purchasing North Slope gas delivered through one of those pipelines.

The primary motivation of REI’s backers in Japan is for the customers in that nation to have better control of the LNG supply and its cost structure by owning the plant. Also, REI would import LNG into smaller, regional ports in Japan, which would mean customers would have more flexibility than is currently the case, where there are just a few large LNG import facilities that are controlled by major utilities and trading companies.

REI’s plant would be about the same size as the existing ConocoPhillips LNG export plant at Nikiski, near the city of Kenai. It would be built on a privately-owned land tract near the borough’s Port MacKenzie. Pease said REI has an option to purchase the land that must be exercised by the end of the year.

Anchorage-based Golder Associates has been doing geotechnical bore-hole drilling at the site, Pease said.

Pease said the Japanese company sees advantages in its “start small” strategy compared with the larger project, however. REI believes that being first into the market, at least with a new Alaska LNG project, is important. Being smaller, starting with 1.5 million tons of LNG per year, will allow it to get a toehold in the Japan market and then expand as the market grows.

The Alaska LNG Project, in contrast, is so big that it will have to secure sales contracts for very large volumes at long terms, which is a challenge given the many other LNG projects chasing the same buyers in Asia, including Japan.

“There has been a recent change in thinking in the LNG business. Until just a few years ago people thought in terms of mega-projects that would supply a lot of LNG, but those also requires large, long-term contracts. The new thinking is toward smaller-scale projects that can be put into operation much more quickly and which don’t require large contracts,” Pease said.

REI got its start in 2011 after the earthquake and tsunami severely damaged Japanese coastal communities and nuclear power plants. Japan had to sharply escalate LNG imports, and prices shot up. One regional government, Hyogo Prefecture, formed a group, led by a team of experienced retired Japanese LNG experts, to explore options for its own, independent source LNG.

REI was subsequently formed, and after a study of sources of LNG in 2011 the company settled on Alaska as the best sources for long-term reliable supplies.

The shorter sailing distance and Alaska’s  long track record of reliably supplying Japan with LNG from the ConocoPhillips plant at Nikiski were key factors in the decision, Pease said.

A smaller LNG project is also being discussed for Port MacKenzie. That is a plant planned to produce LNG for internal Alaska markets like Fairbanks by WesPac Midstream, a California-based firm. If WestPac’s plant is built it would on a land parcel leased from the port. Negotiations are currently underway on a lease of borough-owned land at the port, Mat-Su Borough officials said.

11/20/2016 - 8:42am