LNG plant looks ahead: Conoco seeks 2-year extension

Posted: Tuesday, May 18, 2010

ConocoPhillips is confident they'll secure an extension to their current export license, due to be submitted to the Department of Energy by the beginning of next month.

Dan Clark, the Cook Inlet plant manager for ConocoPhillips Alaska Inc, spoke at the Alliance's Kenai luncheon on Tuesday about the future of the company's liquefied natural gas plant in Nikiski.

Conoco and Houston-based Marathon Oil Co., which also owns a share in the operation, announced earlier this spring that they would seek a two-year extension allowing them to export more than 40 billion cubic feet of gas they still have authorization to ship out.

Their current license to export a total of 99 BCF will expire at the end of March 2011.

Clark said the company would file their application and request a 90-day turnaround from the DOE.

He said they've seen widespread support for the extension from local and regional governments and businesses.

"Given the support we've had, we feel pretty good," Clark said in an interview after the presentation.

The 2009 extension became controversial, with local utilities objecting to exports of gas reserves needed for domestic use. ConocoPhillips and Marathon agreed to drill additional gas development wells per a state request, and have done so.

Clark said he did not expect the state to make similar requests for this application.

If the extension is not approved, Clark said the implications for future of exploration and production in the Inlet would likely be serious.

"There's a relationship between the available market and drilling," Clark said, in response to a question. "Despite all the incentives that are in place, if we can't sell the gas, having those incentives is helpful but it's not enough."

Assuming the extension is granted, it will only cover the operation of the plant for another three years.

Beyond that, Clark said the company would either need to secure a new supply of gas or use the plant in other ways.

"There may be this period of time where there's a different type of usage of the plant or maybe no uses of the plant for a couple years. I don't know," Clark said.

"But ultimately we think there will be a significant supply of gas coming to Southcentral."

Where that gas will come from remains to be seen, but Clark said the company was looking to the north.

"The obvious one to think about is, will there be North Slope gas and when will that happen?" Clark said, referring to the development of a bullet line or spur line. "That's the type of supply that could meet and fill the plant's demands for many years."

Further development of Cook Inlet gas is a possibility as well.

"All the studies that have been done show that there's more gas out there to be found." He said. "Creating a bigger market is what needs to happen, but it is a little bit of a chicken or an egg thing. In order to make a bigger market you need to have a big find."

Clark said the plant could be used for alternate purposes such as gas storage or even importation, but would require some modifications.

Presently the plant is not set-up to re-vaporize liquefied gas for local use, however during peak demand times gas destined for the plant can be diverted to utility markets.

The plant has shipped LNG to Japan since 1969, though no customers have been signed up yet for the post-2011 gas shipments.

Dante Petri can be reached at dante.petri@peninsulaclarion.com

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