Monday, December 31, 2012

2013 Alaska Gas Heroes and Zeros


(1)    Great Bear Petroleum.  These guys took a fresh look at Alaska’s petroleum resources, invested in their ideas and completed their objectives.  New gas and new oil from Alaskan shale deposits will fill the oil and gas pipelines in the future.  Great job – best wishes for continued success.
(2)    Everyone working at Point Thomson.  Oil and gas from Point Thomson will fill the pipeline(s).  All the hard work at Point Thomson will pay off in the future.
(3)    ExxonMobil & The State of Alaska – Nice job on the Point Thomson settlement.
(4)    Governor Parnell – Ramped up his game in 2012, meeting with North Slope Producers CEOs - Bob Dudley of BP, Jim Mulva of ConocoPhillips and Rex Tillerson of Exxon Mobil.  The Point Thomson settlement cleared the deck and in March 2012 the producers announced that they had aligned. He also hit the road and started talking to LNG customers.
(5)    Pedro van Meurs – Keep on sticking to the math and providing reality checks.
(6)    LNG Buyers – The Alaska Gas project is a nonstarter without LNG Buyers and this year we started seeing Japanese and Korean LNG Buyers enter the picture.  With a bit of luck the buyers will become equity partners and help move the project forward.
(7)    Cheniere Energy & Sasol.  Cheniere is moving forward with a lower 48 LNG export project and Sasol is moving forward with a lower 48 gas-to-liquids (GTL) project.  These types of projects will sponge up lower 48 shale gas, and boost gas prices.  Projects like these lead the way and Alaskans should take note and understand the parameters of real world natural gas success stories (here’s a hint – fiscal certainty).
8)  Combined Cycle Power Plants.  One by one high efficiency combined cycle power plants are coming on line.  These plants will replace aging coal plants over the next decade and consume lots of lower 48 natural gas, which will help build natural gas prices back up to a reasonable level.  Anything the builds lower 48 gas price support helps the Alaska gasline project.  Congrats to TVA for bring the John Sevier Combined Cycle plant online ahead of schedule and below cost.


(1)    Matt Damon.  Shale gas hater Damon received funding for his anti-shale gas movie from the United ArabEmirates.  The public discourse about lower 48 shale gas ultimately impacts the price of gas, jobs and the future of gas exports from Alaska.  Bad shale gas law could choke Alaskan shale gas development. The American electorate is about as uninformed, uneducated and mathematically impaired as is possible.  It’s sad to see the simpletons led astray by one of our own funded by those who will profit from our poverty. (Ask me how I really feel!).
(2)    The 2012 presidential campaign.  There was no real discussion of the economic benefits of domestic energy development – a real missed opportunity.  Good policies now could help Alaska in the future. In 2008 I looked forward to 2012, now I’m almost certain that we are in the first years of the idiocracy.
(3)    I could name some other maladroit zeros closer to home, mainly for inaction, but for the time being I’m hopeful that project alignment, real customers and forward momentum will pull them along.

 Good luck in the new year, and work safely.

Saturday, December 15, 2012

LNG Customer Meets with Governor Parnell

We need more stories like these - KOGAS CEO meets with Governor Sean Parnell (LINK).

Alaska Governor Sean Parnell and Mr. Kangsoo Choo, the Chief Executive Officer and President of Korea Gas Corp (KOGAS)

From CEO  Mr. Kangsoo Choo KOGAS website :
Expansion of participation in overseas network projects
We are assertively expanding participation in overseas network project in joint-venture with private sector. On the foundation of design/construction/operational technology and specialized manpower for production and supply facility, which are the core capacities of KOGAS, we will nurture KOGAS to become reputable gas major in the world by not only expanding construction and operation of overseas LNG terminal, LNG liquefaction plant and pipeline network but also by playing the role of bridgehead for advancement of domestic enterprises into overseas market..
Sounds like an equity partner for the LNG plant?

KOGAS is also a take-or-pay buyer of the Cheniere Energy Sabine Pass LNG project.  So far the Cheniere business plan for the Sabine Pass LNG plant seems to be working, i.e. long term take or pay contracts to pre-sale the LNG product.

 More on the same story from LNG WORLD (LINK)

Other tidbits -

Canadian competition: Petronas working on BC LNG (LINK)

Washington Post article on the market for US LNG (LINK)

ExxonMobil Energy outlook (LINK)

Wednesday, November 21, 2012

AGPA's LNG export application response to DOE

APGA's response can be found on DOE's website under Docket No. 12-75-LNG.

Items of note - Good summary of Korean and Japanese interest in Alaska LNG including copies of letters of intent.

Lots of other good background data and history.

Saturday, November 17, 2012

Saturday, November 10, 2012

Vladivostok LNG or Alaska LNG - You're doing it Wrong

Vladivostok Gas Line
Alaskans have again proven they are less nimble in the marketplace and less capable than than other stranded natural gas owners.  Gazprom has announced their plans to build a 2000 mile long gas pipeline (over twice the length of the proposed North Slope to Valdez gas line) to feed a planned LNG plant in Vladivostok.  The LNG plant capacity will be between 10 and 20 mmtpa compared to 25 mmtpa for the Alaska LNG project.  The "all in" cost for field development, pipeline and LNG plant is $44 Billion.

The field development cost is $13.9 Billion and the pipeline cost is $24.8 Billion leaving $5.3 Billion to build the LNG Plant plant.   Assuming a capacity range of 12.5 to 15.0 mmtpa the Gazprom investment equals $2.93 to $3.52 Billion per mmtpa of LNG capacity compared to $2.00 to $2.56 Billion per mmtpa of LNG capacity for Alaskan LNG.

The Gazprom LNG plant cost may be understated, but there is no good reason for Gazprom to bring LNG to market for less cost than the Alaskan project.

The clear message: Alaska LNG - You're doing it Wrong.  Alaskan gas is developed, the distances are less. The customers are the same.  The steel, the talent, the jobs are headed out for projects in all locations outside of Alaska.

Good Luck Gazprom - your investment is safe as long as Alaskans keep kicking the can down the road on the Alaska LNG project.

Alaskans need to learn from this, pick apart the numbers and figure out how to get in the game before the game is over.

Here's the winning formula: Fiscal Certainty + Customer Equity Participation - Taxation Gluttony - Sound Bite Populism = Alaska LNG success.

Sunday, October 28, 2012

This Week In Alaska Gas

Items of note from the past week:

Fiscal Certainty: Alaska Senator Lisa Murkowski met with North Slope producers (LINK1) (LINK2).Quotes from Oil & Gas Journal:

Alaska North Slope producers say the biggest hurdle facing construction of a natural gas pipeline across the state to a planned liquefaction and export facility on its southern coast is the state’s uncertain fiscal regime, US Sen. Lisa Murkowski (R-Alas.) said following meetings in Houston with the three largest ANS producers. 
“Alaskans have waited 4 decades to see some benefit from their [ANS] gas,” Murkowski observed. “While Lower 48 markets may be oversupplied because of the shale boom, places like Japan and South Korea are willing to pay a premium for long-term supply contracts. But that window of opportunity will not remain open indefinitely.”
Good job Lisa.  I remember Ted Stevens attempted to make the same point when he said:
The right climate for this investment in our State must exist. Originally considered a $20 billion project, recent financial analysts’ comments indicate the cost will be $40 billion. No entity will commit that kind of money – whether $20 or $40 billion – without certainty in the financial aspects of the project’s economics.
 Good luck getting the point across now that the price tag is about 50% more.

Stand Alone Pipeline (ASAP) News: The Final Environmental  Impact Statement on Alaska Stand Alone Gas Pipeline (ASAP) Released (LINK1) (LINK2).  Somehow the economic principles of economy of scale won't work for a big pipeline, but somehow we can build a much smaller one?  Where's the "alignment". In about 2 years ASAP will hit the fiscal certainty wall too.

Sunday, October 7, 2012

The $65,000,000,000 Question

Can we build a pipeline project that will make all of Alaska's natural gas dreams come true for $65 Billion?  Dermot Cole doesn't think much of the recent letter sent to Governor Parnell, he says the letter doesn't show much enthusiasm.  To a certain degree Mr. Cole is right.

The $65 Billion price tag is a reality check.  If Alaskan LNG is priced to compete in the global market the project may move forward.  I estimate the base price of Alaskan North Slope gas LNG at around $12/MMBTU before operation cost and taxes are added. At current oil prices, oil indexed LNG trades in the $16/MMBTU range.  The global LNG consumer community want to de-link LNG from crude oil or discount LNG from crude. According to the Federal Energy Regulatory Commission (FERC) Japan and Korea currently pay about $13.80/MMBTU for LNG - the highest rates in the world.

The reality check shows that there is no wiggle room for pricing in excessive profits or taxes.  The whole project is at the ragged edge of feasibility.

Having said that Alaskan LNG has huge benefits that few other projects offer:

  • Short Stable Shipping lanes .  The shipping lanes between Alaska and Asia don't have a Strait of Hormuz to deal with.  Asian LNG buyers need the diversity of supply the Alaska LNG project offers.
  • Political Stability.  LNG from second and third world sources is always at risk of political disruption, especially in the new world of tweeting community organizers.
  • Jobs for Equity Partners. You don't hear much about this but a project of this size will generate a massive amount of commerce in the Asian countries that build modules and pipe for the project. It's possible that equity partners could spend 100% of their project cost within their own borders.
  • Conventional Gas. I support shale gas development, but investing in a large, developed conventional gas resource is more predictable than investing in an undeveloped shale gas resource. 
Project alignment is good and it's good to get the scary reality check estimate out in the open. The Governor, Dan Sullivan and Senator Lisa Murkowski are all out in force saying the right things and engaging with potential LNG customers.

With a bit of luck, more will detail will develop and the project will move forward.

Tuesday, October 2, 2012


Good to see Governor Parnell with LNG customers.  Until now customers have been the missing part of the Alaska LNG equation.

Chairman Mitsunori Torihara of Tokyo Gas Co.

President Naomi Hirose of Tokyo Electric Power Co.

President and CEO of Korea Gas Corporation, Kang Soo Choo.

Saturday, September 29, 2012

Almost There

After years of nattering nonsense we are starting to hear the right kind of stories about the Alaska Gasline project - stories about customers. All those cliches about "the customer is always right" are true.   LNG is not a commodity (yet) so Alaska must have a long term buyer lined up and participating in the LNG project.

The good news includes a piece in the Alaska Dispatch by Amada Coyne. Apparently a Japanese group called Resources Energy Inc is in Alaska with boots on the ground exploring a gas project.

The next bit of good news comes from the Asia Pacific Energy Research Centre LNG Producer - Consumer Conference recently held in Tokyo.  All of the presentation slides are worth reading, but its great to see Alaska Department of Resources Commissioner Dan Sullivan making the case for Alaska gas to a group of buyers (Dan's Slides).

A smart LNG buyer would negotiate to buy Alaskan gas at a tidewater and be a major equity partner in an LNG facility.  The good news is that there are some smart buyers out there and the stars may start aligning soon.

Thursday, September 27, 2012

A Good Week

Good news #1.  Alaska Governor Sean Parnell is making the rounds in Korea and Japan doing what an Alaskan Governor should have been doing since the price of natural gas tanked four years ago.  The Governor's web site features a picture of the Governor smiling, standing next to the US Ambassador to South Korea. That's worth one cowbell, but no more.  Next time the photo op needs to include a living breathing smiling LNG customer.  LNG buyers are making a push to de-link LNG prices from crude oil prices (LINK).  This could be the right time to offer the first delinked LNG supply.  Imagine a long term contract based on cost plus a fixed fee with cost escalators to track inflation rather than the roller coaster linkage to crude oil prices.  Reduced risk for the buyers, producers, and transporters should make a project more appealing.  It's time to get creative Governor.  Buyers want to commoditize LNG - run with that.

Good news #2  Great Bear wants to accelerate their drilling program. Actions speak louder than words.  Keep it up!

September is drawing to a close - still hoping for some more good news.

Sunday, September 16, 2012

Mid September Blues

I had some high hopes for the Valdez LNG Summit (LINK) held this past week, but a summit with no buyers and no sellers isn't much of a summit.  I also hoped that the summit would correspond with Governor Parnell's Third Quarter 2012 milestone:

Third Quarter 2012: Two State-funded groups working on parallel projects must complete discussions to examine consolidation prospects. The groups are the North Slope producers and TC-Alaska (MOU parties) and the Alaska Gasline Development Corporation (AGDC).

There's two weeks to go to make this milestone, so remain patient.

So where are the buyer and the sellers? In a word: Canada. Spectra Energy and BG Group are hatching a plan to build a 500 mile pipeline to Prince Rupert for LNG export (LINK).  The stated capacity is 4.4 BCFD at a cost of $8 Billion.  Compared to the $20 Billion Alaska Gas Pipeline to Alaskan Tidewater the Spectra/BG pipeline is less expensive and it moves more gas.  Possible construction start date : 2015.

British Columbia Premier Christy Clark thinks Apache will win the race to export BC LNG. She may be right.  It's a sure bet that BC LNG will beat new Alaskan LNG to Asian markets.  Premier Clark said “We are moving at lightning speed to try to enable this,” she said. “We need to be in the exports market sooner rather than later to lock up those contracts.”

Wow! Great quote, I wish Sean Parnell had said that.

Friday, August 24, 2012

Golden Pass LNG

North Slope producer ExxonMobil holds a 30% position in Golden Pass Products LLC.  This week GPP announced their intent to move forward with a $10 billion LNG project at the Sabine Pass location.  The project will export an average of 2.0 BCFD of gas.

Obviously it's cheaper to build on the Gulf Coast rather than Alaska, but the cost and capacity data provide an insight into LNG project economics.

In Alaska producers have stranded gas.  Stranded gas has value as an energy source and as a means to maintain reservoir pressure.  At Golden Pass the problem is non producing stranded hardware.  The Golden Pass facility was built to receive imported LNG and sell that gas to the American market.  The shale gas revolution made import facilities like Golden Pass obsolete.  Gas from imported LNG can't compete with cheap domestically produced shale gas.

The Golden Pass export project investment equals about $14/MMBTU/yr export capacity.  ($10 Billion @2 BCFD capacity).  In comparison the Alaska Gas Pipeline Project plus LNG will cost about $40 Billion and export about 3 BCFD which equals about $37/MMBTU/yr export capacity.  By this measure the Alaskan project is over two and half times more expensive than a Gulf Coast stranded equipment project.

The big disadvantage to an Alaskan project is the pipeline required to move the gas to tidewater.  If the pipeline cost is eliminated from the calculation the Alaska Project would only cost 1.33 times the Golden Pass Project - a reflection of the cost of building in Alaska and the value of sunk assets at Sabine Pass.

Of course an Alaskan gas project has other benefits including affordable energy for (some) Alaskans and proximity to Asian LNG buyers.  At the end of the day these benefits will not tip the balance in favor of the Alaskan project.

The value of co-produced natural gas liquids (NGL) will promote Alaska project economics to a small degree, but not a significant amount, perhaps as little as $5 Billion discounted back to the project start date.  Helpful, but not a game changer.

Assuming a relative free market we can expect the low hanging fruit of Gulf Coast import terminals to be converted to export terminals fueled by cheap shale gas.  As more export facilities come on line the domestic price of gas can be expected to increase while abundance of supply puts downward pressure on the asking price of LNG.  The increased cost of feed stock and reduced revenue for products will tend to pinch out projects that move forward later rather than sooner.  Stir in a helping of anti free market regulation and the number of stranded equipment conversions may stay in the single digits.

Still standing by for good news in September, but I don't see a home team bounce in the project economics yet.

Sunday, August 19, 2012

Kitimat Study Released

The next phase in development of the Alaska Gas Pipeline as defined by Governor Sean Parnell will be:

Third Quarter 2012: Two State-funded groups working on parallel projects must complete discussions to examine consolidation prospects. The groups are the North Slope producers and TC-Alaska (MOU parties) and the Alaska Gasline Development Corporation (AGDC).
While waiting for this milestone you might want to read some good papers from the Canadian Energy Research Institute (CERI) Website.

The latest paper titled "Pacific Access:  Part III - Economic Impacts of Exporting Horn River Natural Gas to Asia as LNG" is written from the perspective of Canadians analyzing the proposed Kitimat LNG project.  A lot of the data applies to decisions facing Alaskans.  The paper is well referenced and you can glean a lot of data.  For example: Total LNG Exports equal about 240 mmtpa.  The proposed Alaska LNG project would  added about 20 mmpta to that total, approximately 8% of the total market.  Capital cost of LNG plants are also addressed.  There's a fair amount of quantified data on shale gas production cost too.  File that under good-to-know but remember all shales are not equal and Alaskan shales are not yet proven producers (Although I'm wishing Great Bear the best of luck).

Another good reference is the KBR report titled "LNG LIQUEFACTION —NOT ALL PLANTS ARE CREATED EQUAL"

I hope these provide you something to read and study as we patiently await the September kumbaya milestone. My definition of September success is projects merged into one common plan.

Monday, July 30, 2012

Point Thomson EIS Released

USACE has released the final environmental impact study for ExxonMobil's Point Thomson project. (LINK to NewsMiner Story).  Link to EIS Webpage  Link to the Final EIS.

I think this is more news worthy than the non binding open season.  I'll give this a read and comment later.  Hopefully no show stoppers.

Another Open Season

OK, we're off to the races with a non-binding open season intended to gauge buyer interest in Alaska gas.  Pardon me if I'm not too excited,  but this is only done to fulfill AGIA requirements.  From Bloomberg:

The Alaska Pipeline Project being developed by TransCanada Corp. and Exxon Mobil Corp. will judge interest in shipping natural gas from Alaska's North Slope to a terminal in southern Alaska or Canada.
The companies said Monday they will conduct a nonbinding solicitation from Aug. 31 to Sept. 14 to identify shippers who might want capacity on the pipeline.
I think I like the way the Canadians do it better, you know where they get customers to take equity positions then move forward with a plan. (LINK).  Looking forward to Sept 14th.

Friday, July 27, 2012

Shell Canada LNG Export License Application

Since the Alaska Gas Pipeline and LNG plant plans are in yawn mode, take a look at the Export License Application filed by LNG Canada Development Inc., (Shell Canada, Korea Gas, Mitsubishi, and PetroChina) (LINK).

The annual maximum stated in the application is 1180 BCF, or 3.2 BCF/D which is about the same as the various pipeline options proposed for Alaska.

Section 4.4 of Appendix D (Ziff Energy) addresses Alaska Gas projects in very uncertain terms:

The LNG Option is being explored more thoroughly at time of writing. Project estimates for a 3 Bcf/d pipeline to Valdez are in the order of $20-26 Billion. Costs and economics of transporting and liquefying Alaska production will be dependent on many factors including final size and nature of facility and related pipeline, and are unknown at time of writing.
Section 6.3 foresees the possibility of future "Northern Gas"

Northern Gas (Alaska/Mackenzie Delta): could flow beginning in 2025 at the earliest and, assuming favourable economic conditions, could expand up to 7% of North American supply in
2045. Although discussions for a liquefaction facility and pipeline to Valdez, Alaska are at a preliminary stage, these could impact the supply of Northern gas to North America, if economics were favourable to LNG exports. If Northern Gas is transported to Western Canada, the pipelines would be the costliest component of each project, while another $8 Billion would be needed for Mackenzie field development. Once they are built, the pipelines will have a low variable cost and will continue to flow. Expansion projects (compression) will have low incremental cost and will be likely economic.

 Once again we are in hold mode waiting for 30 July Alaska LNG progress report.

Thursday, July 19, 2012

Export Application Filed

The Alaska Gasline Port Authority has filed an application to export 2.5 bcfd (19 million metric tons per annum) to Asia / Pacific Rim Free Trade Agreement (FTA) countries.  (LINK).

The filing indicates that AGPA plans to export LNG from Valdez.

Monday, July 2, 2012

Good Luck Great Bear

There's no news to discuss on the Alaska Gas Pipeline front but I did take note of Great Bear Petroleum's efforts on a shale oil well (LINK):

Alaska-based independent Great Bear Petroleum is now drilling its first North Slope test well to assess the potential for production of oil from shale formations in the region, similar to the way oil is being produced in the Bakken and Eagle Ford shale formations of the Lower 48 states, the president of Great Bear said Friday.
More production from a new resource will help refill TAPS and may contribute to a new source of gas production.  Without risk takers and innovators like these we would all be sunk.  

I wish them the best of luck and a safe and productive project.  

Losing Our Shirts on Natural Gas

So it's official - Exxon is not happy with dirt cheap natural gas (LINK):

On Wednesday Exxon Chief Executive Rex Tillerson broke from the previous company line that it wasn't being hurt by natural gas prices, admitting that the Irving, Texas-based firm is among those hurting from the price slump. 
"We are all losing our shirts today." Mr. Tillerson said in a talk before the Council on Foreign Relations in New York. "We're making no money. It's all in the red."

Saturday, June 9, 2012

This Weeks Items of Note

No real news on the Alaska Gas Line, so here are some gas industry related tidbits:

Saturday, May 26, 2012

More Cowbell - Thanks Lisa

The Alaska Gas Pipeline project has a fever and the only cure is more cowbell.  This week Senator Lisa Murkowski earned the coveted Alaska Gas Pipeline Blog three cowbell award for her efforts to push the project to potential Asian LNG buyers (LINK), and quote:

Murkowski discussed Alaska’s resource base and proximity to Asia with Ambassador Ichiro Fujisaki of Japan and Ambassador Choi Young-jin of South Korea. Murkowski said the ambassadors showed interest in the potential for an Alaska natural gas pipeline and liquefied natural gas project to deliver affordable energy to Asia.
Good job Lisa, that gas ain't gonna sell it's self. Governor Parnell and Senator Begich, don't despair, there's more awards out there. 

Friday, May 18, 2012

Canada LNG

Shell / KOGAS / Mitsubishi / PetroChina have announced a 12 MTPA LNG plant on Canada's west coast (LINK).  That's about half the size of the possible Alaskan LNG project.  The LNG Canada plant will be located in Kitimat B.C. home of another LNG project Kitimat LNG (LINK).  At 5 MTPA the total of the two plants is less than the possible Alaskan LNG project.

I say "possible" Alaskan LNG project for two reasons 1) LNG isn't crude oil, the potential margins and profits are much less,  and 2) Competition is heating up and Alaska is way behind Australia, the U.S. Gulf Coast and now Canada.

Maybe economies of scale will tip the balance, but remember "You can't dabble at LNG"  Alaska continues to lack the key ingredient of buyer participation.  Until a Japanese, Korean, or Chinese LNG buyer signs up for a portion of Alaskan LNG project we're all just dabbling at LNG.

Friday, May 4, 2012

One Message: Alaskan LNG

At long last Alaskan leadership is on message with the same story: LNG.  Lower 48 shale gas killed the gas pipeline to Canada.  The pipeline is headed to a tidewater LNG plant.  We can still argue about the route, taxes, branch lines, straddle plants and natural gas liquids, but consider the main project objective settled.

On Wednesday Dept of Natural Resources Commissioner Dan Sullivan and Dept. of Revenue Commissioner Bryan Butcher approved TransCanada's Project Plan Amendment (PPA) which switches the gasline focus to commercialization of Alaskan gas a LNG for export (LINK to approval letter).

Meanwhile Senator Lisa Murkowski is in Japan talking Alaskan LNG (LINK).  DNR Commissioner Dan Sullivan also pitches Alaskan LNG in Asia (Slides).  Of course Governor Parnell is on message with his support of the LNG project (LINK). Finally the North Slope producers are aligned (LINK).

Looks like the end of the beginning.

Wednesday, May 2, 2012

Murkowski Markets Alaskan Gas

Lisa Murkowski is on the road marketing Alaskan Gas - (LINK) Quote:

WASHINGTON, D.C. – U.S. Sen. Lisa Murkowski, R-Alaska, yesterday continued her efforts to develop new markets for Alaska’s 35 trillion cubic feet of natural gas on the North Slope by raising the potential of providing a long-term, stable supply of energy to Japan with Japanese Prime Minister Yoshihiko Noda at a dinner hosted by U.S. Secretary of State Hillary Clinton.
“Alaska’s gas is the perfect fit to meet Japan’s energy needs,” Murkowski said. “An LNG line from the North Slope could deliver long-term, stable energy supplies to Japan at a reasonable price. Such a project would be a win-win, both in terms of energy security and environmental policy for Alaska and Japan.”
Murkowski’s conversation with Prime Minister Noda follows a series of meetings she helped lead last week in Washington, D.C., with members of Japan’s Parliament. Murkowski, who is the vice-chair of the U.S. Japan Interparliamentary Group, discussed the benefits of Alaska natural gas to Japan with members of the Diet.

Good Job Keep it up -

Saturday, April 14, 2012

Dan Sullivan Pitching Alaskan LNG?

According to this story by Steve Levine  (LINK) Dan Sullivan is visiting China and Japan pitching the security of LNG from Alaska.  There's also another related story by Levine (LINK).

Apparently there's a 14 slide presentation he presents.  I've asked the DNR for a copy (can't find it on their website).

Quotes from the Steve Levine story:

When Dan Sullivan, Alaska's bare-knuckles natural resources chief, stands before a decisionmaker from China or Japan, he whips out a 14-slide PowerPoint and minces no words: You may be currently buying natural gas from Russia, Qatar or Australia, but take my advice. Get some security in your energy portfolio -- add Alaskan gas.
Perhaps, but Sullivan must also persuade the oil companies, which will have to spend an estimated $40 billion to develop the necessary pipeline and LNG infrastructure. Alaska's Parnell is pushing the companies for a serious draft working plan for LNG export, along with an aggressive construction timetable, by September. Given the level of planning and preparation required for such projects, a rapid effort would have the LNG facility completed in about 2019, Sullivan estimates. If the companies can promise all that, Sullivan says, the governor is prepared to put a reasonable long-term tax and royalty deal before the state Legislature for approval in its next session, which begins in January.
If true this is true then it's good news, but why isn't this story more widely reported and discussed?  I look forward to some more information on Dan's trip.  It's good to know someone is out pushing the project.

Friday, April 6, 2012

Northern Pipelines - On Hold

Low gas prices can't support Arctic gas pipelines:

First the Mackenzie Pipeline (Calgary Herald link) and quote:

CALGARY - Partners in the proposed Mackenzie Valley pipeline have put the $16.2-billion project on hold, slashing budgets and eliminating staff in response to continued poor price outlooks and lack of commercial support.
Imperial Oil, the lead producer in the project with a 34 per cent interest, will close offices in Norman Wells and Fort Simpson, Northwest Territories, this year, and has reduced the size of its office in Inuvik, N.W.T., spokesman Jon Harding said Thursday.
Cheap shale gas that pulled down prices, and cost escalations played into the partners' decision to cut capital on the pipeline project, he said
Back in Alaska pipeline company TransCanada has asked permission to curtail work on the eastern part of the Alaska Gas Pipeline (LINK) and quote:
TransCanada has asked the commissioners of Natural Resources and Revenue to allow it to "curtail" its work on a line that would run from Alaska's North Slope into Alberta, Canada, to focus on a liquefied natural gas project, said Tony Palmer, the company's vice president for major projects development. TransCanada's piece of that project would be the pipeline.
So now there is one project with two probable phases. Alaska LNG pipeline Phase 1 (condensate to TAPS and gas Prudhoe Bay) then Phase 2 (Gas to tidewater + LNG plant).  Lots of permutations and iterations along the way, but many options are now off the table.  Expect LNG for Japan, Korea and China in about a decade.

Sunday, April 1, 2012

Reaction to Point Thomson Settlement

Maybe it's a case of what was said doesn't equal what people heard.  Fairbanks News Miner columnist Dermot Cole heard the part about no commitments (LINK).  The Anchorage Daily News heard (correctly) that Alaska has a deal to develop Point Thomson Gas (LINK) . The Wall Street Journal heard that "Alaska, Gas Firms Clear Way For Pipeline" And many media outletS proclaimed that Alaska and Exxon have agreed to build an LNG plant "Exxon seals deal with Alaska to develop $26b LNG plant".

If you want to know that facts I suggest you look at the documents on the Alaska DNR website (LINK).

What you will find is that one of three alternative or combinations of alternatives will play out over time:

Alternative A - Major Gas Sale : Gas to a pipeline and liquids to TAPS.  The clock is ticking to get this alternative sanctioned by 2016.  The window closes in 2019 when the producers must choose Alternative B or Alternative C.

Alternative B: Increase cycling and produce more liquids for TAPS.  Producers must do this or start losing leases.

Alternative C: Gas to Prudhoe Bay, Condensate to TAPS.   The gas flow to TAPS "Significantly increases TAPS throughput" This alternative also provides gas for in-state use.

None of these options involve a guarantee from the producers. The stated goal of the agreement is "A primary goal of this settlement is to incentivize commercialization of North Slope gas/Major Gas Sale (MGS)"

Looking at these options you can see it's a bit over the top to claim a LNG plant is in the works anytime soon. Possible - maybe, probable no. On the other hand the State and the Producers have covered all the bases, and they have done so in away that allows development of Point Thomson in a way that can boost Prudhoe Bay production in the short term and develop a gas export solution later (i.e. Alternative C first followed by Alternative A).  Alternative B looks like the worst case scenario unless you count Alternative "D" Point Thomson abandoned.

Those are the facts, but what about perceptions?  The markets are focused on the potential of Alaskan LNG entering the global mix.  Alaska's competitors will need to pencil that volume into the mix.  Alaska's potential customers can now step up and start negotiating deals.

Any of these outcomes equal revenue and jobs - Good things for Alaska.

Saturday, March 31, 2012

Point Thomsom Settlement Agreement

The full text of the Settlement Agreement is at the DNR website (LINK).  Notice the EOR role of Point Thomson gas.  That seems to be the one of the sure things of the agreement.   EOR helps fill TAPS which is always a good thing.  The agreement also leads to commercialization of gas for sale or a large scale cycling project - either way Point Thomson starts cranking out revenue.  I'm still reading the whole thing, but so far it looks like Alaska is on the road to some large projects.

Here are some key parts:

1.6 This Agreement sets forth the WIOs’ commitment to produce natural gas condensate liquids (“condensate”) from the Point Thomson Reservoir for delivery into theTransAlaska Pipeline System (“TAPS”). The WIOs have committed to construct anInitial Production System (“IPS”) which is to be completed by the end of the 2015-2016 winter season. The IPS facility is being designed to produce and re-inject (cycle) 200 million cubic feet per day of gas and to produce approximately 10,000 barrels per day of condensate. In addition, a liquid hydrocarbon pipeline is being designed that can transport approximately 70,000 barrels per day from Point Thomson to an existing pipeline interconnection at the Badami field, which will provide for final delivery of Point Thomson liquid hydrocarbons into TAPS. Operation and production from the IPS will provide data and information to assist in evaluation of additional development plans, including potential increased gas and condensate production from Point Thomson, and plans for the delivery of Point Thomson gas into a Major Gas Sale pipeline project.

1.7 In parallel with the work on the IPS, Parties and/or their affiliates to this Agreement will, upon execution of this Agreement, undertake work for commercialization of North Slope gas. This work will build on ongoing gas commercialization efforts. If a Major Gas Sale is Sanctioned prior to year-end 2016, the WIOs will begin work on a Point Thomson project associated with that Major Gas Sale. However, if a Major Gas Sale has not been Sanctioned by June of 2016, the WIOs have committed to begin engineering of a Point Thomson Expansion Project. An expanded cycling project would result in additional condensate production, totaling approximately 20,000 to 30,000 barrels per day into TAPS, depending on the level of expansion. Alternatively, a project to deliver Point Thomson gas to Prudhoe Bay for injection would significantly increase the rate of condensate production at Point Thomson, serve as a pre-investment for a Major Gas Sale project, and essentially complete installation of the Point Thomson wells and facilities required for a Major Gas Sale. In addition, this option would materially increase production at Prudhoe Bay, and result in enhanced recovery at Prudhoe Bay.

1.8 The Agreement further establishes terms and conditions to facilitate development and provide benefits to the State of Alaska. Certain acreage within the Point Thomson Unit is secured when specified work activities are completed (e.g., the IPS is completed and producing) and key commitments or decisions are made (e.g., a Major Gas Sale is Sanctioned or WIOs Commit to a Point Thomson gas development / Prudhoe Bay enhanced oil recovery project or an IPS gas cycling expansion project). Likewise, the Agreement provides for the automatic release of certain acreage to the State if the IPS is not completed or if certain key commitments or decisions are not made (e.g., a Major Gas Sale is not Sanctioned or WIOs do not Commit to a Point Thomson gas development / Prudhoe Bay enhanced oil recovery project or an IPS gas cycling
expansion project). Depending upon the work activities that occur, the Point Thomson Unit will remain in effect or may terminate.

2.13 “Initial Production System” or “IPS” means the gas cycling facilities designed with capacity to produce and re-inject (cycle) 200 million cubic feet of gas per day utilizing reciprocal compression and with the objective of a minimum of 10,000 barrels per day of condensate for delivery into the TransAlaska Pipeline System (“TAPS”).

2.16 “Major Gas Sale” or “MGS” means a large-scale pipeline project having a design throughput of more than 500 million cubic feet of gas per day that results in delivery of gas off the North Slope of Alaska.

2.21 “Point Thomson Gas Development / Prudhoe Bay Enhanced Recovery Project” means a project to deliver Point Thomson gas to Prudhoe Bay for injection that would significantly increase the rate of condensate production at Point Thomson into TAPS, serve as a pre-investment for a Major Gas Sale, essentially complete installation of the Point Thomson wells and facilities required for a Major Gas Sale, and allow for continued efforts towards, and positions Point Thomson gas for, a Major Gas Sale. In addition, this project would materially increase oil production at Prudhoe Bay into TAPS and result in substantial enhanced recovery at Prudhoe Bay. A Point Thomson Gas Development / Prudhoe Bay Enhanced Recovery Project would result in
production and recovery of liquids from Point Thomson and Prudhoe Bay that would be greater than production and recovery of liquids from Point Thomson from an IPS Gas Cycling Expansion Project of a minimum of an additional 20,000 barrels per day. Before Project Start-up required approvals from the Alaska Oil and Gas Conservation Commission must be obtained.
The project would consist of:
(i) a newly constructed gas pipeline from Point Thomson to Prudhoe Bay with the capacity to transport significant volumes of Point Thomson gas in an amount that would position Point Thomson gas for a Major Gas Sale, for injection for:
(a) use in repressuring, stimulation of production, and increasing ultimate
recovery of Prudhoe Bay oil; and (b) for ultimate availability for a Major Gas Sale; and
(ii) additional wells and facilities at Point Thomson to produce and process significant condensate production for delivery into TAPS through existing liquid hydrocarbon pipelines and pipelines constructed as part of the IPS Project. These facilities would also be used for a Major Gas Sale

Friday, March 30, 2012

New Focus On LNG "We Have Aligned"

Nothing to bank on but it sounds like the gas line project is morphing into an All Alaska line that will feed a tidewater LNG plant.  The first element of the plan is the Point Thomson settlement (LINK), and quote:

(Reuters) - The U.S. state of Alaska has reached a settlement with Exxon Mobil Corp and its partners to develop a huge, long-fallow oil and gas field, possibly paving the way for a $26 billion pipeline and an export plant for liquefied natural gas.
The settlement, which resolves a long-running lease dispute over the Point Thomson field about 60 miles (95 km) east of Prudhoe Bay, could allow for exports of liquefied natural gas via tanker to Asia and may boost Alaskan oil production after decades of decline.
In exchange for continued lease control, operator Exxon and partners BP and ConocoPhillips have agreed to build a pipeline from the field to deliver 70,000 barrels per day of liquids into the Trans Alaska Pipeline System.
The settlement also calls for the companies to produce 10,000 barrels per day of natural-gas condensates by the winter of 2015-16, state officials said.
That's a lot of condensate, I'm not sure where that flow will go but I'm looking forward to the project awards and jobs that will flow from this settlement.

The second element of this good news story is the possibility of an LNG export terminal (CEOs Letter to Gov. Sean Parnell). Quote from the letter:

Serious discussions between our  companies have taken place over  the past several months,
along wi th the Alaska Pipeline Project (APP) parties who are supporting the AGIA License.  We have aligned on a structured, stewardable and transparent approach wi th the aim to
commercialize Nor th Slope natural gas resources within an AGIA framework.  As a result of  the rapidly evolving global market, large-scale liquefied natural gas (LNG) exports f rom southcentral Alaska will be assessed as an alternative to gas line exports through Alberta.  In addition to broadening market access, a south-central Alaska LNG approach could more closely align wi th in-state energy demand and needs.  We are now working together on the gas commercialization project concept selection, which would include an associated timeline and an assessment of  major  project  components including in-state pipeline routes and capacities, global LNG trends, and LNG tidewater  site locations, among others. 
This isn't the slam dunk project sanction announcement, but it's close to the Kumbaya moment many of us have looked for.  The language is parsed, but you would like to think that the CEOs of the North Slope producers are at least 80% certain of a project before they signed up to "assess" an Alaskan LNG project.

The current trend in lower 48 shale gas prices lead me to believe that Alaskan LNG export is the last hope of developing Alaska's natural gas.  Full development of Point Thomson makes little sense without a viable outlet for the gas.

One certain take away is that all three producers are on Team AGIA now with the "We have aligned" statement.  Nice job Governor, don't stop now.

Additional LINKS

(Washington Post/Bloomberg Link)
(Gov. Parnell Website Press Release - Pt. Thomson Resolved, Aligment on Gasline)
(Alaska DNR Point Thomson website)

Friday, March 23, 2012

Just what we needed

The Alaska Gas Pipeline is starting to get a lot of attention these days.  Of course all attention is not good attention.  From the Juneau Empire (LINK) "U.S. Rep. Edward Markey, D-Mass., told oil giants BP, ConocoPhillips and Exxon Mobil his natural gas export bills now in Congress would block a proposed $40 billion pipeline to export Alaska natural gas to Asia. " and "Markey said the purpose of one bill is to keep natural gas prices low in the U.S. by shielding the U.S. market from the volatility of the international market."
Nice going Congressman, thanks for sticking your beak into Alaska's business. Now go away.
Kudos to Senators Begich and Murkowski for supporting the idea of Alaskan LNG exports.

Links to other non-news news items of the week (somebody has cranked up the PR machine):

A Northern Pipeline President Obama Should Love

 Exxon Says ‘Significant Progress’ Made to End Alaska Gas Dispute

Wednesday, March 21, 2012

Breakthrough around the corner?

Maybe, possibly, who knows.  I don't tend to get too excited anymore, but this story made the DrudgeReport, has a link to a Financial Times story on the Alaska Gas Pipeline.  (See today's Drudge Report for a link that works (LINK)

Here's a quote:

According to people close to the negotiations, the three companies and state authorities hope to reach agreement next week over a long-running lease dispute at Point Thomson, a large oil and gas field on Alaska’s North Slope.

A settlement would clear the way for the companies to hasten their commercial assessment of a large gas pipeline to Alaska’s southern coast, from where LNG could be shipped to China and other Asian countries. Sean Parnell, Alaska’s governor and a champion of the project, told the Financial Times he was “cautiously optimistic” that the plan would be able to move forward.

Maybe it will play out like they say. A Point Thomson settlement would help in terms of immediate employment opportunities so fingers crossed.  Hastening the gas pipeline may be a stretch.  "Hastening commercial assessment" doesn't sound like a project anytime soon.

Friday, March 16, 2012

Team Alaska - Missing

Japan continues to lobby American officials on the topic of LNG exports (Platt's Link).  Quote:

Japanese officials will meet with a US delegation headed by Deputy Energy Secretary Daniel Poneman later Tuesday to ask that Washington allow exports of LNG to Japan, the world's biggest importer of liquefied natural gas, a Japanese delegate said. 
Platts assessed its Japan/Korea marker Monday at $15.45/MMBtu for April, while its Northwest and Southwest European markers were assessed at $10.95 and $11.35, respectively, for April. In contrast, the NYMEX April gas futures contract settled at $2.269 Monday.
Where's all the Alaskan leadership?  Senators Murkowski and Begich, Governor Parnell, Representative Don Young  - where are you when LNG customers come knocking?  You would think a project to sell Alaskan LNG priced at $12 -$15 would motivate these elected leaders to weigh in and lend a hand, a photo op, a trade mission, something.  Instead they are missing and silent.  The LNG for Japan opportunity may be the last chance for decades.

Saturday, March 3, 2012

Alaska LNG for Japan?


This week the Alaska Dispatch ran a story about a Japanese delegation visiting Anchorage to discuss LNG from the North Slope (LINK). First comment - Hooray! It's about time.  I'm glad the Japanese include Alaska on their list of energy solutions.  I've always wondered why Alaskan leaders don't push Alaskan gas sales to Japan more vigorously.  Without customers for Alaskan gas no gas project will ever be built. Now that introductions are out of the way maybe Alaskan leaders can man up and get engaged with a paying customer who may be motivated to partially fund the project.

Having said that what would a Japanese-Alaskan LNG project look like? Japan needs long term politically stable supplies of LNG.  I can see Japan funding and building the LNG plant and terminal in Valdez that would equal about half the project cost.  The producers and the State of Alaska would build the North Slope gas treatment facility, various natural gas liquids (NGL) projects, and assorted sub-pipelines.  The Japanese will be focused on guaranteed delivery of specific gas volumes and the producers will seek take or pay options for delivery of the gas.Fairbanks, Anchorage, Delta Junction and lots of points in between can execute sub projects along the way.   Remote Alaskans may even benefit from propane extracted from North Slope gas.

Could this really happen?  Yes because a Japan-Alaska-LNG project ticks all the right boxes.

First and foremost is project economics.  A million BTUs (MMBTU) of energy from crude oil cost more than $18.75 today (WTI basis, $22/MMBTU Brent basis) and could exceed $20 in the near future as crude prices edge upward. Henry Hub gas prices may have found bottom in the $2.50/MMBTU range this winter.  At least that's the price that shuts down dry shale gas drilling rigs.  Converting gas to LNG cost about $2/MMBTU.  The resulting low end cost of delivered LNG could be less than $10/MMBTU (Henry Hub indexed) and over $20/MMBTU (crude indexed).

LNG is not a true commodity yet so we can expect a unique price for any North Slope Alaskan LNG sold to Japan.  I expect that the unit cost of Alaskan LNG will be higher than Gulf Coast LNG.  This price difference will enable the project and cover the higher construction cost in Alaska.

But what would drive Japan to sign up for an expensive project? The answer is that Alaskan LNG  is a long term, reliable, dedicated source of supply for Japan completely decoupled from the lower 48 market and lower 48 hazards. A bad lower 48 winter or a bad Gulf hurricane season will not disrupt the flow Alaskan LNG.Additionally Alaskan LNG is closer to Japan than Mid East or Gulf Coast LNG.  Alaskan LNG can be shipped in the largest most efficient tankers unlike Gulf Coast LNG tankers that must transit the Panama Canal. Alaskan LNG is also more reliable than LNG shipped through the Strait of Hormuz.

Japan and the North Slope producers share one vital common interest,  Both sides need a long term deal that works for decades.  To quote Steve Kirchhoff, Vice President – Americas, ExxonMobil Gas and Power Marketing Company "You can't dabble at LNG"

Of course the State of Alaska is behind the curve on LNG exports to Japan, or Asia in general. It's easy to imagine Canadian LNG projects shipping product before Alaskan leaders get their heads around the idea. On one hand I'd like to know what transpired when the Japanese met with Alaskan State government officials. On the other hand I'm afraid the Japanese may have heard very little encouraging news.

Friday, February 24, 2012

Go Pedro

The Alaska Dispatch has a good letter from Pedro van Meurs (LINK).  Pedro has replied to the Concerned's invitation to run for Governor.  Both the invitation and the reply are humorous and point to the root cause of Alaska's ongoing failure to build a gas pipeline.  Pedro says:

Alaska has not lifted a finger to attract new investment from a fiscal perspective. In fact, Alaska does not even have useable fiscal terms for heavy oil, shale oil and natural gas that can be published in a simple investor brochure. How can Alaska attract investors in this way when other nations (Canada, Lower 48, Australia, Brazil, et al.) offer attractive well defined terms?
Unless substantial policy and fiscal changes are introduced that encourage large scale investment in heavy oil, shale oil and natural gas in Alaska, as is being done in competing jurisdictions, the future of oil and gas production in Alaska is bleak.
Sadly I agree fully with the last paragraph.  At today's gas prices I can't understand why Alaska doesn't take bold action to get things rolling. I know the Alaska constitution says "The legislature shall provide for the utilization, development, and conservation of all natural resources belonging to the State, including land and waters, for the maximum benefit of its people" but too many Alaskans focus on the "maximum benefit" rather than the whole sentence including  "utilization, development".  No gas will ever be utilized or developed unless Alaskans accept what Pedro is telling them.

My idea of a good incentive program is a combination of tax holidays and flat taxes. Pick a flat tax rate for new oil and gas and declare a tax holiday for new oil and gas sales.  Imagine the effort that would go into a gas  pipeline if there was a potential payoff for early completion, otherwise sit back and watch the rest the world trade LNG, develop shale gas resources and build the big pipelines.  Alaskans can cling "maximum benefit"but its really about competingPedro tried to warn you.

Saturday, February 11, 2012

New GTL Developments

Spending $40 billion for an Alaskan gas pipeline to the lower 48 seems less and less feasible every day.  $20 billion for a short pipeline to Valdez plus another $20 billion for a LNG plant seems to offer only slight advantages over the big line. Other small pipeline options fail to monetize the the full volume of available North Slope gas.

It's always tempting to talk about Gas-To-Liquids (GTL) to convert Alaskan gas to petroleum products but the cost never seem to add up.  I think this is because many GTL projects like Shell's Pearl convert gas to refined petroleum products (low sulfur diesel, kerosene etc). An Alaskan GTL plant only needs to convert gas into petroleum liquid in the C6 to C16 range, i.e. something liquid at atmospheric pressure and pumpable.  Such a material could be blended with crude oil, moved down TAPS, and sold as crude oil.

Another factor working against GTL plants is size. Plant size drives up cost.  The heart of a GTL plant is the Fischer-Tropsch reactor.  The F-T reaction is exothermic (gives off heat) so reactor size becomes is dependent on effective heat transfer.  An  F-T reactor is fed by syngas produced by reforming natural gas.  Some syngas plants require pure oxygen to form syngas.  An expensive air separation plant must be built to supply the pure oxygen.  An air separation plant adds both capital cost and operating cost.

What if the size and cost of a GTL plant could be reduced and a GTL plant could be customized to the needs of Alaskan gas?  A new outfit is commercializing a technology that might just fit the bill. CompactGTL is scaling up a modular GTL technology that can convert Alaskan gas to synthetic crude oil at lower cost than other GTL processes.  (LINK to CompactGTL presentation) Here are the advantages I see for the CompactGTL process:

1) Reduced reactor size. CompactGTL claims to have reduced reactor size by a factor of 10 through the use of  mini-channel reactors.  I believe in that claim.  The mini-channel reactors integrate a reactor within a plate type heat exchanger. This type of heat exchanger provides very high heat transfer rate.  CompactGTL has implemented this type of reactor for both the steam methane reformer (SMR) and the Fischer-Tropsch (FT) reactor. Size reduction will yield cost reductions.

2) No oxygen required. The CompactGTL process does not use an autothermal reformer therefore no costly air separation plant.  That's a cost reduction.

3) No carbon dioxide separation required.Alaskan natural gas contains about 12% carbon dioxide (CO2). The CompactGTL process does not require CO2 removal.  This reduces cost compared to pipeline alternatives.

4) Modular Design. Modular design suits Alaskan construction needs.  Any gas line project envisions modularized gas treatment plants.  Incremental deployment of CompactGTL using modules would take years and extend the oil production benefits of gas reinjection thus optimizing the total field production.

5) Synthetic Crude Oil. The CompactGTL process is geared to produce an unrefined product.  That keeps cost low and options open.  A synthetic crude could be blended with ANS crude or batched to Valdez. The product would be valued near the price of crude depending on the capabilities of the buyer's refinery.  Note - a FT synthetic crude is not an exact replacement for crude oil, it lacks aromatics, the key ingredient of gasoline. On the plus side a FT synthetic crude lacks low value heavy cuts and troublesome sulfur.   FT synthetic crude is ideal for clean diesel, kerosene and naphtha production.  Converting Alaskan gas into a crude oil equivalent would forever break the market link to cheap shale gas.

6) Economics.  CompactGTL shows one cost comparison in their presentation. Since they are currently focused on floating production, storage and offloading (FPSO) units I'll use that cost unescalated. i.e. "Alaska Factor" equals 1.00,  I figure the cost of building a module on a ship will cost the same as deploying a module to the North Slope.  Crunching those numbers I find that a full deployment of CompactGTL for Alaskan gas would cost upwards of $68 billon and it would produce about $15 billion annually in gross revenue if the product is priced at $100/bbl.  The capital figure is 1.7 times higher than a gas pipeline but the synthetic crude product sells for 5 to 6 times the price of natural gas so that a BTU of North Slope gas could sell for 3.5 more if converted to liquids. These are of course very rough calculations, but the conclusion points in the right direction.

Other considerations

1) Timing.  CompactGTL is currently in the commercialization phase with a demonstration plant funded by Petrobras. It will be some years before we're ready to talk deployment to a cold region.  In those years I doubt the gas to liquids value ratio will change all that much.  I also doubt that Alaska will ink a deal to sell gas as LNG into a market flooded with cheap shale gas and cheap shale gas derived LNG.

2) GTL Trend.  The world is full of cheap gas and stranded gas. CompactGTL is only one of many outfits focused on converting stranded or wasted gas into useful liquids. Technological leaps in catalyst and reactor design may push GTL into full commercial in North America in the near future.

3) NGLs.  Most urban Alaskan would like a big pipeline to deliver gas to their homes at an affordable price.  That may never happen and Alaskans need to make other plans for in-State energy needs.  A GTL plant does not exclude the possibility of propane and butane (NGLs) recovery from North Slope gas upstream of a GTL plant.  The economics of a GTL plant is not dependent of the BTU content of the feed gas, so a GTL plant would not compete with the interest of supplying Alaskans with affordable home-grown energy from NGLs.

Saturday, February 4, 2012

ASAP Draft EIS Available

The draft environmental impact statement is available: (LINK)

Sunday, January 29, 2012

AGIA Spending Report

The Alaska Department of Revenue and Department of Natural Resources submitted a report on expenditures on the Alaska Gasline Inducement Act (AGIA) (LINK).  The report includes details of spending to date and forecast of future spending.

Here's the simplified version:

What's absent from the report (1) The report indicates that no money has been spent to date on the LNG option, but tosses in $35,696,000 for LNG and other contingencies, and (2) There no real substance in terms of results. (3) There's no breakdown of spending East of Delta Junction, i.e. if the LNG option goes through how much AGIA spending was wasted?

The report does break out percentages spent in Alaska and Canada.  I estimate the Delta Junction to Canadian border spending equals about 8% so that 40% of AGIA spending can be tacked on to the cost of any LNG option.

Saturday, January 28, 2012

The Next Alaska Movie

The Alaska Dispatch ran a story on five worst Alaska themed movies (LINK).  I'm sure you'll be excited to learn another great tale of the North is in development.....

I don't want to give too much away, but it's the gripping tale of one state's struggle to bring natural gas to market.  There's excitement: An earthquake, a tsunami, snow, more snow, explosions and the daring rescue of sea mammals.There's a tender love story as stakeholders tearfully embrace mountains of cash.  There's drama when greedy markets confront their addiction to cheap shale gas.  Coming to the bargain DVD bin soon!

Friday, January 27, 2012

Rigging Down on Low Gas Prices

This week shale gas champion Chesapeake Energy announced that they are backing off dry gas drilling and production. Quote:

 Chesapeake Plans to Reduce its Operated Dry Gas Drilling Rig Count to 24 Rigs, a Decline of Approximately 50 Dry Gas Rigs from its 2011 Average Operated Dry Gas Rig Count. 
Chesapeake Plans to Curtail its Gross Operated Gas Production by up to 1.0 Bcf per Day and Plans to Defer New Dry Gas Well Completions and Pipeline Connections Wherever Possible 
 This isn't anything new. Chesapeake has "deferred" production before when the price dips below $4/MMBTU.  The graphic below shows the gas price over time with a sales volume bars on the left.  You'll note the actual volume of transactions is in the $4.00 to $4.40 / MMBTU range.  There's virtually no incentive to drill for dry gas at today's insanely low prices.

I view the Chesapeake action as further validation the $4/MMBTU is the long term support level for lower 48 natural gas. Overall gas rig rates are down 14% from a year ago (791 now vs. 906 last year). We'll soon learn if $4/MMBTU less transportation cost of $1.5/MMBTU can support an LNG plant in Alaska.

Saturday, January 21, 2012

More Lower 48 LNG Exports

The idea of lower 48 LNG exports is becoming a reality. A few months back Cheniere start the trend. I made this prediction last November:

What's next? - I assume the Cheniere business model is a good one and similar import terminals with the right ingredients will follow suit.  See page 38 of the Cheniere presentation (LINK) for plant volumes. 
This week the Department of Energy authorized Sempra to export LNG from the Cameron Parish Site (LINK), and quote:

HOUSTON -(MarketWatch)- The U.S. Department of Energy said Friday it has authorized Cameron LNG to export liquefied natural gas, opening the door wider for U.S. natural gas companies to send their bounty overseas.
The export permit is only the third awarded in the U.S. It allows Cameron, a wholly-owned subsidiary of California-based natural gas distributor and marketer Sempra Energy, to ship up to 1.7 billion cubic feet a day of LNG from its in Cameron Parish, La., facility to countries possessing free-trade agreements with the U.S. 

Here's a list of existing North American LNG import terminals with my analysis of proximity to shale gas (including the pipeline infrastructure to move the shale gas) Note, this table does not include the 2.8 BCFD proposed Gulf Coast LNG Terminal, Brownsville Texas:

The plan to convert LNG import terminals into an export terminals make sense for terminals located near shale gas fields and adequate pipelines. By this analysis there's good potential for four more new export terminals.  Two of those potential sites are controlled in part by Alaskan North Slope producers. I say this to illustrate the business decision before the producers: Build liquefaction  units at existing lower 48 import facilities -or- build a North Slope gas treatment plant, a $20 billion pipeline to Valdez, and a liquefaction at Valdez.  Obviously the Alaska LNG option is pointless unless North Slope gas is priced at a deep discount to Henry Hub.  How deep?  To defer the cost of $20 billion gas line to Valdez North Slope gas needs to sale for $1.50/MMBTU less than Henry Hub (based on a discount cash flow over 20 years at 5%).  

Now this isn't all bad news.  In the best case scenario the four import terminal near shale gas listed above are all converted to LNG export pushing the Henry Hub price of gas up into the $5 or $6/MMBTU range.  At that point in time Alaskan gas will not need to compete with the low capital cost of import facility conversion and the deep discount will not be a factor.  In the mean time it's important to remember the North Slope producers can sell LNG from lower 48 import terminals for less cost compared to building an pipeline to Valdez. 

Prediction - expect more announcements of lower 48 LNG import facility conversion to export.

For more information on the effects of LNG export see the  EIA report (LINK), and

Brookings Institution study on exporting LNG from the United States (LINK)