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Alaska LNG re-engages buyers, North Slope producers; teams to meet

Houston — Technical teams from the state Alaska Gasline Development Corp. and North Slope producers BP and ExxonMobil will meet next week in Houston to begin a review of the $43 billion Alaska LNG project, hoping to find potential cost reductions, an AGDC spokesman said Tuesday.

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Discussions will begin April 2 and will last for several days, said AGDC's Tim Fitzpatrick in an interview. This work is expected to be done by late April, he said.

"We have confirmed that about 25 technical folks from ExxonMobil, BP and AGDC will meet in Houston on the cost reduction workshops," Fitzpatrick said.

The Alaska LNG project includes an 800-mile, 42-inch gas pipeline capable of carrying a maximum 3.3 Bcf/d of gas from the North Slope to near Kenai in southern Alaska and a three-train liquefaction plant there that could annually export up to 20 million mt of LNG.

The just-announced initiative grows out of a request earlier from Alaska Governor Mike Dunleavy for AGDC to review the LNG project's feasibility and to ask North Slope gas producers to become investors and project managers. In response, BP and ExxonMobil signed agreements March 8 to provide technical assistance to the state corporation.

Separately, meetings are set in Shanghai in April with three Chinese companies, led by Sinopec, that have expressed interest in purchasing LNG from Alaska, Fitzpatrick said. Meetings will take place during the LNG 2019 conference, set for April 1-5, and will include Bank of China and China Investment Corp., who have been working with Sinopec in discussions with AGDC.

BRIEFING WITH ALASKA LEGISLATORS

AGDC interim CEO Joe Dubler on Friday told Alaska state legislators the state corporation will explain the new directions being taken for the LNG project, including cost reductions, slowing what was considered an aggressive schedule and the involvement with the North Slope producers. Previously AGDC had hoped to have the project in construction in 2021 and to be completed in 2024.

"They (the Chinese) were not comfortable with the prior schedule and they are happy with the direction we are now going," he said. "This is slower and more gradual. If big projects like this are schedule-driven they fail," Dubler said.

BP, ExxonMobil and ConocoPhillips, another North Slope producer, had been part of a four-party consortium with AGDC formed to work on the LNG project, but the companies withdrew in 2015 citing poor economics. Former Governor Bill Walker directed the state corporation to continue work on its own, mainly on the US Federal Energy Regulatory Commission license.

While the March 8 agreements with BP and ExxonMobil to provide technical expertise are non-binding, Dubler told the legislators, "but they are important first steps. We would like to have third-party participation in completing the FERC process, and that is why we entered into the [memorandum of understanding]," Dubler said. "The producers, because they are gas owners, seemed a logical place to start."

ConocoPhillips is not part of the MOU but has said it would commit its gas to Alaska LNG if the project were built. Dubler also said AGDC will have to have partners engaged when it does final front-end engineering and design for the project, which will be a costly undertaking.

One problem AGDC has is that it will be short of cash in completing work on the FERC license and will need an infusion of capital from an investor to do that, Dubler said. The state corporation will have $15.3 million on hand at the end of state fiscal 2019, which is June 30, he added. At least $20 million will be needed to complete the licensing work, Dubler said.

"We hope to get partners in to do this, but we'll see," he said.

The reorganization of Alaska LNG will take the state out of the driver's seat in owning and managing the project, and returning to the prior arrangement with the consortium where private companies were in major ownership and management positions.

Alaska LNG continues to face major challenges, Dubler said.

"There are a lot of [LNG] projects worldwide that are right at tidewater, and which don't have to build and 800-mile pipeline," Dubler said.

The price of LNG in Asia markets, now about $8/MMBtu, is another challenge, he added. "We think we can get close to that, but we'll know at the end of the review," Dubler said. "If we can get close we'll recommend continuing."

One advantage Alaska has is it is closer to Asia than competitors on the US Gulf Coast, with seven to eight days of sailing compared with 20 days to 30 days from the USGC, Dubler said. The gas resource is well identified, at about 35 Tcf of proven reserves, he added.

-- Tim Bradner, newsdesk@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com