LNG plant hopes to stick around

Conoco Phillips, Marathon have confidence in inlet’s gas reserves, seek to extend contract

Posted: Sunday, January 21, 2007


  The Conoco-Phillips liquefied natural gas plant in Nikiski is pictured from the air last winter. ConocoPhillips and Marathon Oil have requested an extension of the facility's export license. Photo by M. Scott Moon

The Conoco-Phillips liquefied natural gas plant in Nikiski is pictured from the air last winter. ConocoPhillips and Marathon Oil have requested an extension of the facility's export license.

Photo by M. Scott Moon

ConocoPhillips and Marathon Oil Corp. have filed jointly for a two-year extension on the Kenai liquefied natural gas facility’s export license.

The plant exports between 40 billion and 50 billion cubic feet of gas each year to Japan, serving two customers, Tokyo Electric Power Co. and Tokyo Gas Co. The rest of the 150 billion cubic feet of gas passing through the plant each year is used domestically.

In a joint press release Friday, the companies announced they’d submitted the application with the U.S. Department of Energy looking to extend the current license, due to expire March 31, 2009, until March 31, 2011.

“This extension will mean continued investments in the development of Cook Inlet gas resources and will maintain high-paying jobs in the community,” said Darren Jones, vice president of Alaska commercial assets for ConocoPhillips.

The companies are confident that Cook Inlet has sufficient gas resources to maintain a strong industrial base on the Kenai Peninsula, Jones said, adding that the extension would provide an incentive for further gas development.

The Kenai LNG plant in Nikiski began operations in 1969 as a joint venture between Phillips, now ConocoPhillips, and Marathon. It is the only LNG export facility in North America.

John Barns, manager of Marathon’s Alaska Production Operations, said the LNG operation had played a vital role in Southcentral Alaska’s economy for 38 years.

“This operations is not only a key element of our Alaska operations, it is a strategically important asset for the region and the state, and its continued operation provides options and flexibility in meeting the future energy needs of the region,” he said.

When the companies applied for the existing five-year license, itself an extension of an earlier one, their application was accompanied by the contract with their Japanese customers. The two-year license extension being sought now requires no accompanying contract, Jones said, adding, “Our customers have indicated interest in the gas.

Jones also said ConocoPhillips recognized local concern over the dwindling Cook Inlet gas supply, but assured that there would be sufficient gas to supply utilities and other domestic customers.

“Our extension takes into account the local utility needs,” Jones said.

According to a Department of Energy study, the Cook Inlet Basin is thought to contain some 13 trillion to 17 trillion cubic feet of undiscovered gas. Jones said the Alaska Department of Natural Resources figures there are roughly 1.6 trillion cubic feet of known reserves.

“We see about 1.7 trillion cubic feet, so our numbers are not far off,” Jones said.

At a consumption rate of 150 billion cubic feet a year, that’s about 11.3 years’ worth.

ConocoPhillips and Marathon plan to engage in further development themselves. Jones said ConocoPhillips has plans to invest in and drill two to four new wells at its Tyonek Platform in the North Cook Inlet Unit if the extension is granted. Those wells will produce some of the new export gas, but they would likely last from 10 to 15 years, Jones said.

Marathon’s John Barnes said that company hopes to be able to continue exploration and development activity similar to what it has been doing in the past few years.

It could take six months to a year to get the Department of Energy approval for the extension, Barnes said, noting that the last five-year extension had taken two years to win approval, in part because of concerns over the continued availability of gas for domestic consumers. The Department of Energy process is likely to focus on assuring that local demands are met, Barnes said.

The LNG plant employs 58 people directly and supports another 128 jobs in the Kenai community, according to the press release. According to the companies, hundreds of exploration, production and oil field service jobs in the Cook Inlet are tied to providing gas to the facility. State and local economies benefit from approximately $50 million in annual royalties and taxes.

The plant is operated by ConocoPhillips, which owns 70 percent. Marathon, which owns 30 percent of the plant, operates the tankers, Jones said.

Hal Spence can be reached at harold.spence@peninsulaclarion.com.

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