Alaska and North Slope producers are discussing possible new ownership structures for the large Alaska LNG project, a state official acknowledged in an interview Tuesday.
BP, ConocoPhillips, ExxonMobil and the state of Alaska have been working on a project involving a jointly owned 800-mile gas pipeline from the North Slope and a large LNG plant in a south Alaska port. Costs are estimated at $45 billion-$65 billion.
Acting state Natural Resources Commissioner Marty Rutherford, the state's lead on the project, confirmed that "transition" talks are underway with the producers and could include a new partnership arrangement and a larger role for the state, which now holds about 25% of the project. The three industry partners also hold about 25% each.
"The current price environment has caused very company to ratchet down expenditures, and there is great interest in how to do the project with the lowest cost of supply," she said.
Talks involve each company's willingness to take an equity share in the project or to sell its gas, Rutherford said. "There are different perspectives [among the companies] on the best path forward, to bring the highest value for the gas, and what role in the project each company will feel most comfortable with," Rutherford said.
"There could be a larger role for the state," she said. The state has tools available that could lower the cost of supplying LNG, such as tax-exempt bonding authority for parts of the project.
Talks are now proceeding on a one-on-one basis between the state and companies, Rutherford said. If it proceeds, the project is now planned to be in construction in 2019 and in operation in 2024 or 2025, and that schedule could still be met even under a realigned ownership, Rutherford said.
"We are the most serious [among the slope gas owners] about not letting the schedule slip because we have only one LNG project," where the other partners have a diverse set of interests in LNG, including projects elsewhere, she said.
Project partner BP acknowledged there are economic challenges to the project, given low prices.
"BP and its Alaska LNG co-ventures have dedicated over 250 people and more than $500 million to moving the project forward. The current low energy price environment creates a challenge for the Alaska LNG project," BP's regional manager, Dave Van Tuyl, said in a statement.
"However, BP remains committed to working with all project participants, including the State of Alaska, to make the Alaska LNG project successful," he said.
There are approximately 35 trillion cubic feet of known slope gas reserves, mostly in the Prudhoe Bay and Point Thomson fields.
STATUS OF PROJECT WORK
Alaska Governor Bill Walker has been keen to push forward so that the project will not lose momentum and will have an edge over competitors when energy markets recover.
Work underway includes pre-front end engineering and design, and preparations to file an application with the US Federal Energy Regulatory Commission. The pre-FEED work, which will cost about $600 million, is being managed by ExxonMobil and will be finished at the end of this year, as scheduled. It will include a revised cost estimate. A decision to proceed into FEED in 2017 is the next big step, but that is estimated at $1.5 billion-$2 billion and some of the company partners are balking, according to sources familiar with the project.
Rutherford said there is enough flexibility in the schedule that a delay in the FEED decision could still allow completion in 2024 or 2025.
However, there are already minor slippages in the schedule on the regulatory front. Larry Persily, oil and gas adviser to the Kenai Peninsula Borough and a former federal Alaska gas pipeline coordinator, said completion of several resource reports required by FERC may not be ready in the second quarter as previously planned.
Also, the Alaska LNG Project team has advised FERC that its application for authorization to build the project will not be done in September, as was planned, but might instead be done toward the end of the year, perhaps in December.
