The Alaska Natural Gas Development Authority is preparing its required reports on the feasibility of an Alaska liquefied natural gas (LNG) export project that would market North Slope gas.
However, the report won't give Alaskans the definitive word on whether the project is viable, only that prospects are encouraging enough to warrant further work, the authority's executive director, Harold Heinze, told its board of directors Aug. 16.
The $300,000 appropriated by the Legislature for the authority's first year isn't enough to do much more than a conceptual feasibility study.
Heinze and his staff reviewed progress on the report, which is required by Ballot Measure 3, approved by Alaska voters in the November 2002 general elections. The ballot measure, a result of a citizen initiative campaign, formed the authority and required a report and plan for developing an LNG project within one year.
The report will be published in September and will include the results by work by consultants on the project, Heinze said.
A key part of the report will be results of consultant studies to "benchmark" an Alaska LNG project against completing LNG suppliers elsewhere in the Pacific. Wood Mackenzie, a U.K.-based international consulting firm, has been retained to compare possible delivery costs of Alaska LNG compared with LNG delivered from Sakhalin in the Russian Far East, Indonesia, Australia, Qatar and other places which produce gas and sell LNG in the Pacific region.
Heinze said others who have looked at an Alaska LNG project and compared its economics against competitors have not had the kind of information that Wood Mackenzie has on those other projects.
Stone and Webster, another consulting engineering firm, has been retained to review costs of an LNG plant built in southern Alaska. Heinze said he is comfortable with information the authority has on costs of building a 36-inch, 800-mile gas pipeline from the North Slope to southern Alaska, but the LNG plant estimates the authority has are somewhat questionable, he said.
Tim Bridgman, an Anchorage consulting engineer who is leading the consulting team on the feasibility study, told the board that the September report can be considered only an "interim" result, and that it will take another year and more money to complete a final feasibility study.
"Only then will we be able to answer the question of whether we really have a project," Bridgman told the board.
At that point, the state would have to make a major commitment of $200 million to $300 million to do more detailed engineering studies, Bridgman said.
Those would take two years to do, and by mid-2007 the state would have much more definitive information on costs and would be in a position to decide whether or not to actually build the project, which would cost about $10 billion and be in operation in early 2010.
Dan Sullivan, one of the board members, asked Heinze how the authority could finance $200 million to $300 million in detailed engineering without firm knowledge that the project can actually be built.
Heinze said he believes a kind of "grubstake" bond could be marketed, which are high-risk bonds. Heinze said buyers would be made aware that the project might not be built. They would not be conventional revenue bonds, which depend on project revenues to be repaid, Heinze told the board.
The authority's first-year report will meet the legal requirement for a report but also will serve as an educational tool to inform the public about the authority's work, Heinze told the board. The report will be distributed statewide as an insert to newspapers, he said.
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