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.