Saturday, July 30, 2011

Larry Persily interview

Larry Persily, Federal Gasline Coordinator was interviewed by the Petroleum News. Here's a link to a .PDF of that interview.

From the interview:

Petroleum News: Getting back to the fiscal negotiations with the state, where do you start?

Persily: ....Start with a blank piece of paper and see what you can get done.

...I don’t see any permit problem that can’t be resolved. I think the economics and fiscal terms and the politics are what would stop this project.

Friday, July 29, 2011

New Calls to Dump AGIA

The Alaska Gasline Port Authority (AGPA) has a new press release (LINK) calling for an LNG plant at Valdez (LINK to Report).

In a nutshell the report claims that an LNG plant at Valdez is competitive with other LNG projects for supplying LNG to Asian buyers.

The report does a good job of quantifying the demand side without any actual indication of buyer interest in Alaskan LNG. At this point in time non binding expressions of interest would go the next step to show that buyers are actually interested and armed with baskets of cash. This is important because all Alaskan gas projects are empty promises until buyers step up.

Some other metrics from the report - The LNG plant is estimated to cost $1,200/ton and operate on 9.65% of the gas feed. The reports assumes that pipeline LNG gas plant owner operators will be satisfied with 8% ROE and that natural gas liquids will garner $80/bbl.

The all in cost of delivered LNG is estimated to equal $8.50/MMBTU priced at rates indexed to crude oil prices. This cost well below current and projected LNG cost.

Weak points - 8% ROE won't bank the deal. Think 14% - 15%. Without some indication of buyer or developer interest the report has the empty ring of the early days of project promotion.

Instead we're hearing the Tokyo Gas is looking to Atlantic LNG (LINK).

Recommendation: An Asian LNG buyer should cash in US treasuries and take a large equity position in securing Alaskan LNG. Let's face it who wouldn't rather own MMBTUs instead of USDs if the exchange rate is $8.50/MMBTU.

Monday, July 18, 2011

Shell Out of Mackenzie Pipeline Project

Just once I'd like to hear some positve news about a North American Arctic gas pipeline.

Today we learn that Shell is pulling out of the Mackenzie gas pipeline (News LINK).

Shell is (was) an 11% player in the pipeline project. The project go / no-go date is December 2013.

Keep an eye on who picks up the Shell share - predictions?

Wednesday, July 6, 2011

In State Gasline - ASAP, a second look

I'm reviewing the ASAP project plan in more detail and noticed a clever design feature. I like clever and this feature is geared at pumping up project revenue.

Normally the NGL capacity of a project is based on the incoming raw gas composition, but this project exploits a unique opportunity. Since so much North Slope gas is reinjected it's possible to capture some extra NGL from the re-injection stream, and "enrich" the ASAP gas stream. To optimize gas line utilization ethane is stripped from the NGLs to make room for the more marketable NGLs like propane and butanes.

On page 2-11 of the ASAP report you'll see Figure 2.11, a Flow Schematic of ASAP facilities. (top portion shown below):

What this diagram shows is that raw NGLs will get deethanized (ethane removed) and the ethane free NGLs will get re-injected into the gas stream. The text of the report says that the pipeline is "being designed to transport a conditioned natural gas that is highly enriched in non-methane hydrocarbons" (page 2-8 of ASAP Report).

This means that the product gas will be more valuable than straight run conditioned gas. NGLs include ethane, propane, isobutane, and normal butane. Ethane in the gas stream would waste capacity since there is no practical means to ship it at the pipeline terminus. By removing ethane the pipeline has more capacity to move a valuable mixture of propane and butanes (C3 and C4s). Those NGLs may be shipped by barge from the Cook Inlet NGL Extraction Facility.

How much propane/butane NGL could the pipeline carry? The upper limit is controlled by the composition, pressure and temperature. If the gas line composition is very low in ethane, 2,500 psi and 30 degrees F the NGL fraction could be as high as 15%. At total gas volumes of 440 MMCFD (downstream of Fairbanks) the NGL volumes could be as high as 44,000 bbl/day. For comparison, Pt. Thomson is estimated to yield 10,000 initially and 70,000 bbl/day of condensate when completed. Today bulk propane trades for $2/gallon ($84/bbl). This means the NGL gross revenue stream could be as high as $1.35 billion per year. About $1 billion of additional capital expense is required to inject and extract the NGL from the gas stream. (see Report Table 5.5 below):

Update (09 July 11) According to Dan Fauske, AGDC president the NGL figure is closer to 33,000 bbl/day. That figure definitely falls within the range estimated above.

So where will the gas go? It's anybody's guess, only the open season will reveal who will step up and participate. Here's my guess at the potential users. Some are more obvious than others:

  1. Fairbanks. According to the ASAP report Fairbanks may take 60 MMSCFD of utility grade gas.

  2. Donlin Creek Mine. This mine has a proposal to use up to 12 billion SCF/yr which works out to 33 MMSCFD. A lateral from the ASAP line could provide big cost savings to the mine developers.

  3. Kenai LNG Plant - 1.5 MTPA of LNG capacity equals a demand of about 200 MMSCFD.

  4. NGL shipper - The NGLs discussed above could account for up to 66 MMSCFD of pipeline capacity.

  5. Agrium - could use 140 MMSCFD - Scratch that, they're busy tearing down the plant and shipping it to Timbuktu, Nigeria or BFE.
Total quantifiable end user demands = 60+33+200+66 = 359 MMSCFD. That accounts for 72% of the 500 MMSCFD capacity.

That leaves 141 MMSCFD for other utility users including gas for Anchorage and electric power producers.

Is this project do-able? I think so. The NGL design feature monetizes a stranded resource and adds revenues that are in balance with the capital cost. Feeding the Kenai LNG plant keeps Alaska in the LNG export business utilizing an existing capital resource.

Is the project bankable? The report indicates that it is and I don't see any fatal flaws in their reasoning, but I'll continue to crunch the numbers.

Does the ASAP pipeline threaten the AGIA line? I don't think so. In some ways it compliments AGIA by developing more natural gas infrastructure and by leading the way monetizing North Slope gas and NGL.

Conclusion: Take the next step, let's try another open season!

Tuesday, July 5, 2011

In State Gasline - ASAP

ASAP - Alaska Stand Alone Pipeline.

Report from the Alaska Gasline Development Corporation

News release dated 05 July 11

Project Plan dated 01 July 11

From the News-Miner: In-state gas line 'feasible,' report says by Chris Eshleman

First look:

Size: 24",
Pressure: 2,500 PSI
Length: 737 miles
Products: Gas+ NGL
Cost: $7.52 Billion
Capacity: 0.5 BCFD
No gas for Richardson Hwy
First Gas / Mechanically Complete: 2018