AGDC meets in Kenai

The Alaska Gasline Development Corporation is moving forward with its transition into leadership of the Alaska LNG Project.

 

The board of directors for the corporation, which represents the state’s interests in a gasline project, met at Kenai’s Cannery Lodge Thursday to discuss work on the Alaska LNG Project and recent gas marketing efforts in Asia. Since an analysis from consulting firm Wood MacKenzie was presented to the Legislature in August showing the Alaska LNG Project as one of the least competitive LNG projects in the world at present and the three producer partners on the project — BP, ConocoPhillips and ExxonMobil — announced they would step back from making further investments, the state has been working out how to transition the completed assets from the project so the state can press on.

AGDC President Keith Meyer presented updates to the board, saying the negotiations around the transfer of the project’s assets “are continuing in cooperative manner.”

“We want to reach an agreement, and then we have a number of transition activities that are going right now that will wrap up by the end of the year,

The target date for the agreement is in October, and Meyer said he expected the transition to be complete by the end of the year. He said AGDC hoped to have access to the project assets by then to completed the filings to the Federal Energy Regulatory Commission for a “seamless continuation of the project.”

Up until now, the project has been in the pre-front end engineering and design phase, or pre-FEED. The producer partners opened the FERC docket with all their names on it, applied for an LNG export permit and filed the draft resource reports with FERC, and now that the state has taken over leadership, all of that will need to be transferred. The state was not originally on the export permit, nor did it hold ownership in the Alaska LNG Project, LLC, which owned the land purchased in Nikiski for the proposed plant and all the geotechnical and geophysical work conducted there.

Right now, the project is paused before the decision to enter the front-end engineering and design phase, or FEED. Once the FERC application is filed, the agency will return comments to the project managers on its concerns and the concerns of the public commenters.

Meyer said AGDC staff is currently meeting often with the licensing team, participating in community meetings, contracting with the existing contractors to complete resource reports and prepare the application and contracting with legal counsel to help with the FERC application, among other preparatory tasks. Because the state is taking over, AGDC is also evaluating alternative structures for the project, including a potential tax exemption for the income of the project. Gov. Bill Walker has said in previous Clarion interviews he is confident the state can secure that tax exemption, which will bring down the cost of production and make the project more competitive.

Both Walker and Meyer have been making visits in Asia to gauge interest from potential buyers for Alaska’s LNG there.

“Nobody needs LNG right now, we know that, but people know they want it by that early 2020s timeframe,” Meyer said. “It was good to hear that. … I think the market folks we met with, both government and industry people, were happy to hear that Alaska is still alive and well in the LNG space and also are looking forward to the kind of offering I think we can make given the geographic proximity and the ability to price this project with quite a bit less volatility than what their other suppliers may offer.”

Meyer restated that the producer partners stepping back does not constitute their withdrawal from the project. ConocoPhillips signed a memorandum of understanding with AGDC to negotiate the formation of a joint venture marketing firm, to market North Slope LNG. He said while the MOU is only with ConocoPhillips at the moment, it is open to other producers in the future if they want to join in.

“We did want to make that available to the other producers and to other third parties,” Meyer said. “That doesn’t have to be just the former joint venture participants. We see it as a good way to communicate to the market that in fact we’ve got gas supply.”

Next year will likely be a hard-hitting year for marketing the project, Meyer said. The Final Investment Decision will likely not come until late 2018 or 2019, but in the meantime, AGDC executives will be raising awareness for the project among potential buyers and working out the licensing and project structure, he said.

Since the announcement of the producer partners’ backing down from investment, many Alaskans have expressed doubts about the future of the project, especially in the face of a still-looming state budget shortfall. The global LNG market is currently oversupplied and prices have stayed low as a number of LNG facilities worldwide have come online, and because Alaska’s project is expensive to develop and market, it is less competitive. Board member Hugh Short asked Meyer what he would say to Alaskans who say AGDC should walk away from the project.

“These are the things that I hear in the community about this project. I think the biggest challenge … was that if the majority of Alaskans, whether that’s the Legislature or the business community or voters, constituents, if they don’t support this project, it presents even that much more of a headwind as you go out to market Alaska’s gas,” Short said.

Meyer said the state would be missing an opportunity for decades if it failed to move forward on the project now. The state is not going it alone, but will be looking for investors elsewhere rather than from the producers, he said.

“I think it’s something the state really owes its people, to look at what does it really look like if you just stop? What if you don’t do this project? What if you don’t ever have a gas pipeline? What if you just let the oil run dry?” Meyer said. “…If you really look at the two paths, the two choices, either do it or not, I believe having a project will be much more beneficial to the state than not having a project.”

 

Reach Elizabeth Earl at elizabeth.earl@peninsulaclarion.com.

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