Governor Walker responds to HB132

HB 132 seeks to constrain the Alaska Gasline Development Corporation (AGDC) and prevent them from any planning activities related to expanding the size and scope of the Alaska Stand Alone Pipeline (ASAP).



Governor Walker responds to HB132 from Alaska Governor Bill Walker on Vimeo.

Gov. Walker makes good points and  and defends his objective to develop the big gasline project (AKLNG) and work in parallel to make the ASAP option economically viable.

Watch this press conference video - I was real happy to hear the Governor mention competition, the marketplace and potential customers.  This guy understands the trade offs and risk.  He also understands that the neighbors next door are poised to win the LNG race.

Speaking of Canada, they recently came up with a brilliant way to boost the economics of LNG projects. (Globe and Mail Link).  The Canadian approach is to allow LNG projects to depreciate the projects more quickly.  We 'Mericans could benefit from this idea and I don't know why Alaskan politicians aren't taking the hint.  Accelerated depreciation is absolutely the best idea I've heard yet. The idea mitigates the financial risk of spending tens of billions of dollars on a mega project.  I don't agree with the term tax break - it's more of a way of shifting the time the taxes are collected.

Redefining the timing of tax collection is the best idea ever because the government won't collect any taxes from un-built projects.  I hope Senators Lisa Murkowski, Dan Sullivan, Representative Don Young, and Governor Walker warm up to this idea and take note of what Canada has done - it's truly a project enabling action that is 100% in the hands of the politicians. Aside from Gov. Walker exactly what are the rest of Alaska's politicians doing to more the project forward?

AK BC LNG Competition

In the not so far off future LNG may flow from western British Columbia and/or Alaska.  Of course market is increasingly competitive and all proposed projects may not fly. (LINK to Globe and Mail)

Learn more about proposed Canadian LNG projects here (LINK to NEB)

Other Pipelines and Projects

The Alaska Gas Pipeline and associated LNG plant is, according to all the evidence I can gather, dead for at least another decade.  The slides presented with the ExxonMobil second quarter earning conference call still list Alaska as one of the "Upstream LNG future opportunities".  See page 17 of the presentation slide set.

 

The Alaska LNG project does not even rate a bullet for explanation and none of the analyst in attendance had any interest in Alaska LNG.  Here's the only mention of the Alaska LNG rpoject:

We also continue to assess other LNG opportunities in Alaska, Australia, Russia and Tanzania. A range of factors will be considered before any final investment decision is made, in particular, the fiscal and regulatory regime, market conditions, and capital costs.(Transcript Link)

They did mention that pesky concept of fiscal and regulatory regime for  the umpteenth time but I don't expect Alaska to sit up and listen, Tanzania might get in the game, but Alaska can't stop hating long enough to cut a good durable deal.  In the mean time other projects emerge or fade in response to market forces.

The Russian Shtokman project has been canceled. This project was an offshore version of the Alaska project with a combination of gas exports via pipeline and 15 MTPA of LNG.  The gas production rate was about half of the Alaska gas project size and the stated cost was about a quarter of the cost of the Alaska gas project.  The cost estimate seems light and I suspect the refined cost estimate pushed the project over the cliff of feasibility. Chalk up another victory to North American shale gas  I expect other marginal project to be cancelled as shale gas LNG moves forward.

New project of the week - $12 Billion TransCanada Energy East Project. The project involves conversion of a gas pipeline to oil and a total of 2700 miles of line across the Canada. Shipping for 900,000 BPD of the 1.1 million BPD capacity has already been contracted.

 

Nice job Canada - The project recycles an old pipeline and displaces imported oil. Jobs, Jobs Jobs - it's all about Jobs.

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.