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ExxonMobil strikes deal with Alaska to feed LNG project

Highlights

Some Point Thomson lawsuit settlement terms to be modified

BP agreed to terms previously; ConocoPhillips still in talks

Anchorage, Alaska — ExxonMobil has agreed on terms and conditions for the sale of its 13.8 Tcf of natural gas resources in the Prudhoe Bay and Point Thomson fields of Alaska's North Slope to Alaska Gasline Development Corp., the state-owned entity leading development of the Alaska LNG Project, state and AGDC officials announced Monday.

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The agreement follows a similar commitment of gas to the LNG project made last May by BP, also a major North Slope gas owner.

State Commissioner of Natural Resources Andy Mack said the two agreements commit 22.7 Tcf to the LNG project, the majority of the about 32 Tcf of gas identified on the slope.

The figures include the state's royalty share of gas, which ranges between 12.5% and 16.6% of the gas depending on the leases involved.

"Today's announcement is further evidence that the major North Slope producers are committed to this project. It's good news, but it's just one step of many needed for a major project like this," Mack told a briefing for reporters.

As part of the deal, the state reached an agreement with ExxonMobil to modify certain terms of a 2012 lawsuit settlement with the owners of Point Thomson, the largest stakes in which are held by ExxonMobil and BP, Mack said.

ConocoPhillips, the third major North Slope gas owner, is still in discussions with AGDC on commitment of its gas to the project, said Leiza Wilcox, AGDC vice president for commercial relations. ConocoPhillips' Alaska gas - about 9 Tcf in total -- is mostly located in the Prudhoe Bay field.

PRICES CONFIDENTIAL

The price terms agreed between AGDC and the two companies remain confidential, Wilcox said. However, AGDC has estimated that the wellhead price the state itself would receive for its royalty share of gas will likely range between $1/MMBtu and $2/MMBtu.

Although the producers' price was not disclosed, the state's expectations for prices for its own gas would likely be similar.

"We believe a price in [the $1/MMBtu to $2/MMBtu range] would give the producers a sufficient return and yet allow us to sell LNG at a competitive price in the market," Wilcox said.

The agreements foresee the producers selling gas at the wellhead to AGDC and the state corporation selling LNG from the Alaska LNG Project to buyers, most of which are expected to be based in Asia, Wilcox said.

AGDC is in advanced negotiations with Chinese companies, including Sinopec as a buyer, and Bank of China and China Investment Corp. as financiers for 75% of the expected 20 million mt/year of LNG to be exported from Alaska. Final agreements between AGDC and the Chinese companies are expected to be signed by the end of December, she said.

Although they are not as advanced, discussions are also underway with Tokyo Gas Corp., Korea Gas and Petro-Vietnam on the remaining 25% of LNG expected to be exported, or 5 million mt/year, Wilcox said.

Alaska LNG is a $43 billion-plus project that would build an 800-mile, 42-inch diameter gas pipeline from the North Slope to a planned liquefaction plant in Nikiski on the Kenai Peninsula, south of Anchorage. A gas processing plant, needed mainly to remove carbon dioxide from the Prudhoe Bay gas, would also be built on the North Slope.

FEDERAL APPROVALS

Wilcox said AGDC is making good progress on getting federal regulatory approvals. The US Federal Energy Regulatory Commission is now working on the project's environmental impact statement and expects to have it finalized by November 2019, Wilcox said. A federal record of decision, which would clear the way for the FERC approval, is expected in February 2020.

That would allow for a final investment decision that year, for construction to be underway in 2021 and completion in 2024 or 2025.

Wilcox also said AGDC does not expect the US' current trade dispute with China to greatly affect the project. It will likely be resolved before the project's final investment decision is made in 2020, she said.

Also, there are discussions underway on how possible Chinese tariffs on imported Alaska LNG could be mitigated. One idea being considered is to request exemption from tariffs for LNG purchased and imported by a Chinese company such as Sinopec.

"Otherwise, it would be like China imposing tariffs on its own gas," she said.

Despite the frictions, there are no signs of Chinese purchases of LNG overall slowing down. "We expect the Asia market to continue growing," Wilcox said.

-- Tim Bradner, newsdesk@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com