State opens season for AK LNG Project

It’s open season for the Alaska Gasline Development Corp.

 

That’s not to be confused with open season on AGDC, which legislators skeptical of the state-owned corporation leading and continuing the roughly $40 billion Alaska LNG Project have had on its biggest proponent, Gov. Bill Walker.

AGDC’s open season to reserve pipeline and liquefaction capacity in the Alaska LNG Project started Thursday, June 15, and will run through Aug. 31, President Keith Meyer said during the corporation’s board of directors meeting, also Thursday.

Potential customers interested in reserving capacity in the Alaska LNG tolling system won’t be expected to make a definitive commitment yet, Meyer stressed.

But the capacity solicitation will provide pricing protection to those potential customers that do raise their hand, he said, as well as some rights to expand their share of capacity in the project and the right to have their capacity assigned to another party among other things.

“We’re a little early to have a full binding open season,” Meyer said during the meeting.

He also said AGDC estimates the tolling tariff will be about $6 per million British thermal units of LNG, which is nearly equivalent on an energy-cost basis to on thousand cubic of natural gas, of mcf, which is the standard unit of measurement for the commodity.

Companies with interest will be expected to provide AGDC with a letter of intent to purchase capacity in the system and in-turn AGDC will respond with a term sheet specifying the foundation customer terms, including some of the aforementioned benefits.

Meyer said his team has been talking with the large producers who hold rights to the North Slope natural gas that would supply the system about the process.

From the state’s side, the open season will give AGDC an idea as to how much interest the market really has in the Alaska LNG Project.

While there has long been ample discussion about the viability of the project — particularly since LNG prices took a worldwide dive along with oil in 2014 — it all, has been speculation to this point.

According to Meyer, this is the first time the state has asked prospective customers in an LNG project to formally express interest, even if it is non-binding.

Walker and Meyer have continuously said 2017 would be a year for ending that speculation and seeing if Alaska LNG could compete globally with a new financial structure since the state took the project over from BP, ConocoPhillips and ExxonMobil late last year.

The crux of their position has been that the state-led project could be successful with smaller investor returns than the oil majors require while adding a major new revenue source for the State of Alaska and getting natural gas to many more communities in the state.

Under the previous equity-share owner model, the producers wanted to slow down the project until the current global LNG glut subsided and prices subsequently recovered.

The governor did not want the project to lose momentum after the state and the producers spent roughly $600 million studying and designing it since 2013, and took up the option for the state to take over the lead role.

Also, the open season on customer solicitation will give AGDC an idea as to whether or not construction of the massive project, designed to produce up to 20 million tons of LNG per year, should be phased to match demand, Meyer said.

Some pieces of infrastructure, primarily the 800-mile, 42-inch diameter pipeline, would have to be built even if the market can’t fill it right away, but the North Slope gas treatment plant and Nikiski LNG plant could start small and grow.

That’s because they were designed using three “trains” to reach the 20 million tons per annum total, and those trains don’t all have to be installed at once.

This round of solicitations is aimed at gaining insight into whether the producers might want to reserve capacity to sell gas into the state’s LNG tolling project.

Meyer said it is still a little early in the process to expect Asian LNG buyers, many of whom he says just recently heard about the Alaska LNG Project for the first time, to step forward with a letter of intent. That’s a step Asian utilities don’t take lightly, he added.

And though AGDC has been working hard to get the word out this year to spread the word about its project with Meyer making several trips to Asia, LNG customers typically don’t take the letter of intent step until at least 12 to 18 months after initial engagement from a project proponent, according to AGDC Commercial Vice President Lieza Wilcox.

At the same time, Meyer said potential customers will be expected to make firm commitments by May 2018, as the customer contracts will underwrite the tens of billions of dollars of debt that will likely be needed to finance construction.

To further interest from Asia, Meyer said AGDC plans to hose several big LNG buyers from China this summer, but he declined to go into further detail about how many or what type of customer any of those companies might be.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Topics

Daniel Donkel 10 days ago

For 50 years Alaska's oil and gas laws have been unfairly influenced by big oil so only a few majors can control 95% of all oil markets and this helps keep Alaskans and other smaller explorers out, so the state is mostly locked up by a modern day monopoly and a rigged system that is hard to fix! They hide this well and they own the media in my opinion!

As the majors slowed or stopped exploration and the rigged oil and gas Agencies keep Alaskans and smaller competitors out of Alaska's oil prodcution, the results are this broken system that keeps oil prodcution and income at a steep decline from 2 million barrels of oil per day to 500,000!

With $70 Billion in the oil fund and saving accounts, ( Permanent fund) , now the state is crying broke and the Governor vetoed the cash credits that the state use to induce non producers and smaller investors, this did not affect the majors!

The bait and switch came when the Alaska Governor vetoed $600 million which was 1% of the $60 billion they state has in the fund, how wrong was that!

This veto not to pay what was promised tells the investment world a lot about the state of Alaska. This is in part why Alaska is hurting, they shot themselves in the foot!

These earned cash credits by the state of Alaska was aimed to encourage risky exploration so the state can increase it's royalty and taxes but the majors keep its tax benefits as they write it off the top and get paid by not having pay billions in taxes but with the smaller competitors they don't anything until the veto is corrected or who knows what or when! That is wrong to hurt the small competitors and enrich the big oil companies that have a monopoly and many unfair advantages!

Michael Bishop 10 days ago
Bill Walker is absolutely delusional on this issue. He is a man in a mission to completely destroy this state with this ridiculous boondoggle of all boondoggles. $3 selling price and $15 to tidewater for production! Outrageous fiduciary irresponsibility of the highest magnitude. This guy is a complete joke. What a tool. 

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