Saturday, October 29, 2011

Alaska LNG - Back in the news

Governor Sean Parnell has taken a position on an Alaska Gas Line option - LNG.  From ADN (LINK):

Parnell, in a speech to an oil and gas industry group in Anchorage, said he wants the major North Slope players - Exxon Mobil Corp., BP and ConocoPhillips - to coalesce behind a project that would allow for liquefied natural gas to be shipped overseas. He wants them to do this under the framework of the Alaska Gasline Inducement Act. If they do, the state can be flexible, including talking tax and royalty terms, he said.
Also see Amanda Coyne's Alaska Dispatch article (LINK)

LNG to tidewater is not a new idea.  It's an option included in the Alaska Gas Inducement Act  (AGIA).  What is news is the the Governor can't envision how Alaska Gas will ever compete with abundant lower 48 shale gas.  Of course the public is not in the loop on the facts and figures but it's believable when you look at the capital cost, the taxes and the low price of lower 48 shale gas.

The big news in his statement is "the state can be flexible, including talking tax and royalty terms". Wow!  This is the one area under the State's control. Getting back to the economics - Lower 48 LNG import facilities are considering conversion to exporting. An Alaskan LNG export facility will need to compete with those projects so the Governor is going to have to be extremely flexible.  Politically this may be the only option with a chance.  The All-Alaska aspect of the plan should resonate with the voters, especially when it supplies affordable fuel to so many along the route.Alaska's competition in the Lower 48 is busy lining up customers and cutting deals (LINK: Cheniere lands customer for LNG export).

Is this just an empty challenge?  Let's hope not.  I'd like to think that the option is thoroughly vetted and in the realm of the possible for the State and the producers.  There's always one element missing from announcements on Alaska's LNG plans - a BUYER.  I'll hold my applause for Governor Parnell until he makes a LNG announcement with a producer CEO and an Asian buyer CEO standing close by.

Sunday, October 23, 2011

Even more LNG for Kitimat

While Alaska continues to jaw about gas lines and LNG (TIM BRADNER LINK) / (BILL WALKER LINK), the Canadians are all in.  For the second week in a row we have news about LNG projects at Kitimat (KITIMAT LINK).

Sunday, October 16, 2011

+1 Canadian LNG, -1 Alaska LNG

This week ConocoPhillips purchased Marathon's share of the Kenai LNG plant (LINK) and the Kitimat B.C. LNG project received an export license (LINK).  The Kenai plant is scheduled to be mothballed and may be converted to and IMPORT terminal 

Neither of these news items are new or shocking, but the stories illustrate Alaska's ongoing failure to compete in gas markets.  One upside, maybe someday Kitimat will export LNG to the Kenai terminal.

Sunday, October 9, 2011

LNG Ice Breakers?

The options for Alaska's gas seem to be getting odder each day.  Now we have a suggestion of LNG ice breakers. (LINK to Dermot Cole article).  According to Pedro Van Meurs:

If there is a dramatic way to improve the economics of North Slope gas, it may be to export it without a pipeline, he writes. Use icebreakers to get to the North Slope and ship LNG by tanker to a place like Dutch Harbor, where it would be transferred to regular tankers.  A project along those terms could start in 2018 and make the gas economical enough to compete with the Yamal project in Russia.  Van Meurs also notes, however, that he is not an expert on icebreakers or North Slope ice conditions, but  he thinks that with the thinning of the summer ice, there will some a time (sic) when this could work
Apparently this is not totally outlandish.  Some firms are already working on Ice Class LNG ships. (LINK) I'll file this under things I won't see before I retire.

Saturday, October 8, 2011

Japan pays $19/MMBTU for LNG

Mega Projects like the Alaska Gas Pipeline don't get funded on the basis of a sky high spot price, but $19/MMBTU LNG vs. $3.48/MMBTU gas in the lower 48 should stimulate a new long term LNG strategy by Japan and Alaska.  (LINK). The LNG price paid vs. lower 48 gas price leads to two conclusions. 1) Alaska gas is stranded indefinitely and 2) Either the Gulf Coast or Alaska have an opportunity to strike long term deals with Japan for LNG sales.

The chart above shows how the Japanese price paid for LNG diverged from other markets in late '08.  Here's a chart of Japan's LNG import volumes:

Japan's current LNG imports equal about two times Alaska's potential gas production.  I've crunched and few numbers and it looks like $10 to $12 per MMBTU for Alaskan LNG would justify a project. 

Mega Projects like this require risk mitigation. Typically LNG prices are indexed to crude oil prices.  Using that pricing mechanism places too much downside risk on Alaska in the event oil prices take a dive as the economy continues to sputter.  What would work is fixed pricing until the project reaches payout, then index to crude.  That would allow the project to reach payout at the soonest possible date.

The "do nothing" option (Alaska's current path) will lead to some incremental development of Gulf Coast LNG export capacity with a marginal impact on lower 48 gas prices.  That impact will not be enough to shove prices back into the $6/MMBTU range needed to justify the Alaska Gas Pipeline.

Saturday, October 1, 2011

Governor Parnell on Huckabee, and more.

Governor Parnell on Huckabee talking about taxes and drilling in Alaska, no mention of the gas pipeline:

Governor Parnell on Huckabee from Office of Governor Sean Parnell on Vimeo.

Also noticed this LNG video this week.

LNG: The Facts from Center for Liquefied Natural Gas on Vimeo.

LOL moment at the 3:58 min mark when the spokesman takes a gulp from a beaker of water cooled by LNG evaporation. Nice video, but imagine OUTBOUND LNG instead of inbound LNG.

In other news: Australia will become the Qatar of LNG. (LINK)  By 2020 Australian LNG exports could top 100 mtpa compared to 77 mtpa from Qatar.  For comparison, the volume of gas available from Alaska equals 35 mtpa in LNG.  A full scale Alaskan LNG export project seems unlikely, but Alaskan gas could supply North American markets if and when shale gas derived LNG is exported from the Gulf Coast.

This week Chevron moved forward with a $28B investment in the Western Australian Wheatstone 8.9 mtpa LNG project (LINK).