Loss of partner, political obstacles prompted BG bid drop

Photo by Craig Cook courtesy of Sundog Media

BG Group told Alaska legislators Feb. 2 that it had planned to submit a bid for an Alaska liquefied natural gas project in the state of Alaska’s recent solicitation for gas project proposals, but pulled back out of concerns for political risks and when a pipeline company partner pulled out of a proposed joint venture at the last minute.

In a related development, former Alaska governor and U.S. Interior Secretary Walter Hickel told the state Senate Resources Committee the state should hold a second round of solicitations for proposals under its Alaska Gasoline Inducement Act and that results of the first round should be scrapped.

In a prepared statement read by a spokesman, Hickel said a pipeline and LNG plant could become a “common carrier” for Arctic resources delivered to several nations.

David Keane, vice president of BG North America, also told the resources committee Feb. 2 that political risks weighed heavily in BG’s decision to forego submitting a bid, mainly opposition voiced by Alaska’s congressional delegation to North Slope gas being exported.

BG is a major U.K.-based energy company with extensive experience in liquefied natural gas trading. The company is now exploring for gas on the North Slope in partnership with Anadarko Petroleum Corp.

The state received five proposals Nov. 30 under its solicitation but on Jan. 4 said only one met the terms of the request for applications, a proposal by TransCanada Corp. for an all-land pipeline from the North Slope to Alberta.

Hickel is a strong supporter of an LNG project.

Keane said BG believes the highest-value market for Alaska gas is Asia rather than the continental U.S. LNG sales will return better value for North Slope gas because gas is priced in parity with crude oil in Asia but against other gas in continental U.S. markets, Keane told legislators.

“Asia-Pacific is the natural market for North Slope gas,” Keane said.

BG also believes there are not enough proven gas reserves on the North Slope to support a large all-land pipeline that would deliver 4.5 billion cubic feet per day. TransCanada has proposed a large pipeline project, as has ConocoPhillips in a separate proposal.

BG believes there are enough proven reserves, however, to support a smaller 2.7 billion cubic feet per day project, which is enough to support an LNG project. BG’s plan was to build the project in two phases, a pipeline to southern Alaska to an LNG project in the first phase, and a second phase pipeline branching off from the first to deliver gas through Canada to the continental U.S. when more gas reserves are discovered.

BG’s plan was to build the pipeline oversized, with a 48-inch diameter, from the North Slope to Delta Junction in Interior Alaska, Keane said. This would have extra capacity for eventual shipments through a pipeline to Canada. The pipeline from Delta south to the LNG plant in Valdez would be 42 inches in diameter, he said.

BG’s plans had called for a three-train LNG plant in Valdez. The pipeline part of the project was estimated to cost $13.5 billion in 2007 dollars. The entire project, including the LNG plant, was pegged at $22 billion, Keane said.

The company was concerned with potential delays and the effect those would have on construction costs and tariffs for transporting gas, Keane said.

The gas reserve uncertainties are widely acknowledged. The 35 trillion cubic feet of proven reserves on the Slope are enough to supply a large continental U.S. pipeline like that proposed by TransCanada or ConocoPhillips for 18 to 20 years, but another 15 tcf of gas will have to be found to supply long-term needs for the pipeline.

North Slope producers as well as TransCanada are confident additional gas will be found, however, because much of the North Slope is gas prone and most potential gas prospects are unexplored.

On political objections to an LNG project, Keane said there were political risks with Alaska gas being transported through Canada, “which may or may not ultimately go to the U.S.,” Keane said.

In previous presentations in Alaska, BG has said LNG exports to Asia could be balanced by imports of LNG to the U.S. from Atlantic Basin LNG projects. BG has substantial experience in LNG trading and could handle such swaps, Keane said.

In addition to concerns over political opposition to LNG exports from Congress, Keane said BG was worried because the pipeline portion of its LNG project could fall under the Regulatory Commission of Alaska jurisdiction rather than the Federal Energy Regulatory Commission. BG worries that state regulators might tilt decisions in the state’s interest, which is for low tariffs, at the expense of a pipeline company.

11/20/2016 - 6:42pm