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.

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