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Impacts from LNG license decision mostly unknown

Posted: March 12, 2013 - 11:03pm  |  Updated: March 13, 2013 - 6:49am
An aerial view of ConocoPhillips Liquified Natural Gas plant, LNG August 10, 2011 in Nikiski, Alaska.   File photo by M. Scott Moon/Peninsula Clarion
File photo by M. Scott Moon/Peninsula Clarion
An aerial view of ConocoPhillips Liquified Natural Gas plant, LNG August 10, 2011 in Nikiski, Alaska.

Yet to be determined.

That phrase may best sum up the immediate and long-term future of ConocoPhillips’ Kenai natural gas liquefaction facility now that the company has decided to let its export license expire on March 31. The phrase could also describe what effects the decision might have on the area’s economy, its oil and gas industry and tax base.

“We really don’t know and that’s the truth,” said Amy Burnett, a ConocoPhillips spokeswoman, when asked about how long the plant will remain in its current state.

Among the existing unanswered questions are how long the LNG plant can remain in its current standby state, how many workers will be employed at the facility in the coming months, when or if the facility could open again, and under what conditions the company’s license could be renewed and exports could begin again.

In lieu of answers to those questions, ConocoPhillips is leaving itself room to respond to market conditions, particularly those of Cook Inlet gas exploration, in the future, Burnett said.

“We are leaving options open, and if local needs are met and there are significant additional gas for export, we could apply for a license at that time,” Burnett said, clarifying that the plant is still operational. “The plant is currently in a state where we are maximizing our flexibility to make that decision.”

Burnett said she did not have detailed information about future staffing needs, but said they have been “varied” since 2011 when the company announced it would be mothballing the plant.

“We anticipate there is going to be an ongoing level of maintenance, there is going to be oversight and we are going to continue to need staffing,” she said. “We are going to work with our employees to find alternative positions for anyone who might be affected.”

The company’s announcement drew a mixed reaction from local officials and state lawmakers who represent the area.

Sen. Cathy Giessel, R-Anchorage, said she salutes the company for making the “responsible decision.”

“We’ve got less natural gas and we are unable to meet our own natural gas needs here in Southcentral,” said Giessel, chair of the Senate Resources Committee. “So for them to cold mode the LNG plant is a responsible decision. But, I’m sad to see it happen when we sit on such natural resources here.”

Giessel said the announcement was a reminder that the Legislature needs to act to “get our industries going again.”

“We’ve been sitting here pondering and studying problems for so long,” she said.

House Speaker Mike Chenault, R-Nikiski, said he was “saddened” by the announcement, but understands the reasoning. He echoed Giessel’s sentiments on a possible legislative nudge to help with the future of the LNG plant.

“Some of us are working on trying to bring a long-term energy supply to not only Alaskans, but also to provide for export opportunities for the state of Alaska to make additional revenues off of our resources,” he said, speaking of House Bill 4 — the current incarnation of his efforts to develop a North Slope gas pipeline.

Chenault said a gas pipeline would not be the only opportunity to reopen the plant, but he considers it the long-term option.

“I hope that the exploration that is going on in Cook Inlet pays rewards and that we see a larger increase in our gas reserves to hopefully allow them to open back up,” he said. “But at this time, the explorers are doing what they can to find gas, but ... there are not any known quantities that are available to operate that facility and provide gas to the consumer market.”

The speaker estimated the announcement would impact the plant employees that might have to find work elsewhere and the borough and area tax bases.

“It brings another issue in and that’s funding for some of the critical services that we have in Nikiski like the fire service area, the senior service area and the recreation service area,” he said. “With that facility going away, that means the tax base will be smaller, which will mean that the people in that region will have to ... either lower the expectations of what the service areas provide, or raise some form of new revenue to pay for the services that they currently receive.”

Kenai Peninsula Borough Mayor Mike Navarre said the borough has not yet discussed all of the impacts the decision will have to its tax rolls.

However, Borough Assessor Tom Anderson said the borough would not see a massive drop in the LNG plant’s value as the borough has been assessing it in anticipation that it would close eventually.

“The methodology that we have been using for the last several years, we are still using the same methodology this year, which is basically looking at the cost of abandoning that facility at some point in the future and discounting the value based upon the present value of that cost,” he said.

Anderson said the LNG plant still has value despite the fact that the company will let its export license expire.

“Basically the reason for that is because the plant is still there, it still could operate if ConocoPhillips chose to pursue a new export license,” he said. “It is basically still a functional facility still at this point.”

Navarre said he feels “the future is bright” in Nikiski, adding the announcement was not a repeat of the Agrium closure.

“Agrium had a lot more jobs associated with it and Agrium was a complete shut down and (they) eliminated the jobs,” he said. “They will still be maintaining the plant there and ConocoPhillips still has a lot of activity in Cook Inlet that’ll keep going. It is not going to have the same impact ... to industry support services, vendors and things like that.”

If there is a silver lining, Navarre said it is that the decision coincides with increased activity in the Inlet.

“It is easier to absorb the impacts now than when Agrium shut down,” he said. “We are growing a lot in other areas and seeing investment in Cook Inlet and other areas. (The economy) can take (the impacts) better.

“It is obviously not something we are happy about, but it is just something that was beyond our control.”

 

Brian Smith can be reached at brian.smith@peninsulaclarion.com.

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BigRedDog
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BigRedDog 03/13/13 - 08:14 am
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Liquify North Slope Gas

When is somebody going to put a gas liqification plant online at Dead Horse? Ship that gas to Japan from there! Probably cheaper to export from some other place, but would that have the potential benefit of encreasing oil flow at Prudoe Bay? With all the whoop tee lala about BIG or little pipeline, selling short, industry favor, just who is going to count on a pipeline in this economy? So we say the new old sourdough prayer, "Lord let there be another Pipeline, and this time I promise not to pee it away."

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