Project Data Filed with FERC

Lots of AK-LNG project filings:

(FERC FILINGS)

Project Legislative Briefing

Project Description (public version)

ALASKA LNG FERC FILINGS

Signs of life for the Alaska LNG Project?

New Files: Request to Commence Pre-Filing Process - Alaska LNG Project by ConocoPhillips, BP, ExxonMobil, etal 

Milestone schedule:

 

Find more at the FERC ELibrary  website (LINK)

Use the "General Search" option and Docket number PF 14-21

Project Docket : PF14-21-000

Another filing (LNG Export application) is located at http://energy.gov/fe/downloads/alaska-lng-project-llc-14-96-lng

TransCanada Out?

Link

Perhaps this is a procedural step needed in order to make way for the new and improved project team.

The BIG Agreement

Memorandum of Understanding (MOU)

Heads of Agreement (HOA)

Stand Off ? Game Over ?

Platts reports that the State of Alaska "will withhold an offer of special state fiscal terms for a large North Slope gas pipeline and liquefied natural gas project until companies working on the project reach agreement on terms among themselves to proceed with the project"

Interesting news - Obviously the AGIA project team of TransCanada and ExxonMobil will need to agree to abandon AGIA for new undisclosed agreement and project structure.

If TransCanada and the North Slope producers assemble a new project structure will the new project include an equity position for the state? And what about the Japanese (JBIC & REI) I'd like to think customers with money to invest would have a role on the project.

There are a lot of moving parts here and the state of Alaska and the producers have spent years and millions of dollars with very little to show for their efforts.  The clock is ticking down and I see Governor Sean Parnell losing the game in the last second.

The first big loss happened on Sarah Palin's watch - The gas line was almost a reality when North American shale gas burst upon the scene.  North Slope producer ExxonMobil bet big on shale gas ($40billion) and bought XTO.  Fractional term Governor Palin's introduction of AGIA burned valuable time off the clock and the win went to gas investments elsewhere.

The full impact of shale gas was not immediately apparent and it took some years for the overland Alaska gasline to morph into an all-Alaska gasline feeding an LNG export terminal.

Along the way fate dealt Japan a cruel hand in the form of a devastating earthquake which also destroyed nuclear plants at Fukushima.  The magnitude of the Fukushima disaster resulted in the closing of all nuclear plants in Japan and a dramatic uptick in Japan's need for imported energy including LNG.

Somehow the state skillfully avoided the obvious and failed to engage with Alaska's long term LNG customer to strike a deal.

Meanwhile cheap shale gas in Texas and Louisiana prompted many Gulf of Mexico LNG import terminals to invest in LNG export projects.  Soon, the first loads of GOM LNG will hit the market.  A portion of those sales will go to Japan.  Again other projects are getting built while Alaska make no progress.

The losses keep piling up. Maybe Governor Parnell knows what he's doing but the producers have hundreds of competing projects with known variables competing for their investment dollars.  In fairness to the Governor he did win the battle of Point Thomson so I have some level of faith in his abilities.

Other opportunities exist (state equity position, and low interest customer government backed financing).  Again Alaska is avoiding the win or ignoring the clock, either way investment dollars are poised to go elsewhere.

The clock is ticking, and oh by the way interest rates are heading up. Spoiler Alert Governor Parnell - interest rates will kill the gas line for decades unless the grand bargain is reached in 2014.

Buy out TransCanada

That's what former Alaska Governor Frank Murkowski says.  (JUNEAU EMPIRE LINK). Murkowski's quote:

“I think we should take TransCanada out of the equity stream for this project,” Murkowski said. “This is an equity interest, which in my opinion, belongs solely to the State of Alaska.”

TransCanada's role in the Alaska Gas Pipeline dates back to the pre-shale gas days of Sarah Palin, AGIA, and much higher gas prices:

 
Murkowski's logic is sound.   TransCanada has performed the requested task, they have done a good job, but the market place changed and their involvement in the Alaska Gas Pipeline no longer serves a need.

This chart shows the ratio of oil prices to natural gas prices over the same time range - Alaskans, heating their homes with oil are especially hard hit by this market shift:

 

The world has changed in other ways since Palin and AGIA. The Fukushima disaster has led Japan to shut down all their nuclear power generation.  Tensions in the Middle East have flared adding risk to buyers that rely on LNG from that region.  

Japan can become a true equity partner in the Gasline / LNG project whereas TransCanada is along for the ride and a healthy chunk of regulated monopoly profits.

There's that word - Profit, Return on Capital Employed (ROCE).  I hate to break this to you but an Alaskan Gasline / LNG project is not going to be wildly profitable. This project is all about managing risk.  The project risk can be mitigated with low interest rates (SEE JBIC RATES on page 97 of this link), managing tax rates, and controlling cost.  One cost control opportunity is to take TransCanada out of the equation.

Pipelines are regulated monopolies and they typically enjoy high returns. High rates paid to TransCanada are a cost that can be avoided or mitigated if the pipeline is built and operated by the true equity partners which include the North Slope producers, the people of Alaska and the overseas buyers.

I think Frank Murkowski is on to something here - let's see if it gains traction.

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.

Alaska South Central LNG (SCLNG) Project update.

Project update.  MAY 2013 (LINK) 

FEB 2013 (LINK)

LNG Project Presentations

The project concept letter from last week was brief and left readers wanting more detail.  This week Mr. Steve Butt Senior Project, Manager Alaska LNG Concept Selection provided a presentation "Progress Exxon/Mobil ConocoPhillips BP &, TransCanada Have Made to Advance North Slope, Natural Gas Development"

LINKS

Video

PDF

Thanks to Matt Buxton, Government Reporter, Fairbanks Daily News-Miner  for providing the links.

I think you'll find the presentation is more informative than the letter.



 

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.

Project Progress Report posted on line

Here's a link to the progress report letter.

More analysis to follow.

This Weeks Items of Note

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

• Shell expands LNG option for 18-wheelers.  Good, gas displaces lower 48 oil imports it also creates a new demand for lower 48 shale gas.
• TransCanada to build pipeline for Shell LNG plant.  Money well spent.  One third the capacity of the Alaska Gas Line at one fifth the price (LNG plant cost excluded). Another Link
• Gas Line Options
• Lower 48 Gas will displace coal for power generation. Combined cycle gas fired plants are the wave of the future.
• A reminder that all LNG investments are risky, things may turn sour in Australia.
• Dragging their heals on LNG exports.  The feds aren't about to move on energy projects until the elections are over.

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.

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.

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.

Alaska Pipeline Project - FERC Filing

LINK to Alaska Pipeline Project draft resource report:

Plethora of options

Tons of ideas out there, but still no buyers for Alaska gas. Here's links to pipeline related presentations submitted to the Senate Resources Committee this week :

Larry Persily, Federal Coordinator (LINK)
TransCanada (LINK)
Bill "Valdez LNG" Walker (LINK)
Malcolm Roberts (LINK)
Harold Heinze ANGDA (LINK)
David Gottstein (LINK)
AGDC, answers to 54 Wielechowski questions (LINK)
DNR Dan Sullivan, Gasline Update (LINK)
Dan "ASAP" Fauske (LINK)

No Precedent Agreements

That's the word from TransCanada (LINK to slides) in a presentation to Alaska State Legislature Senate Resources Committee on August 16, 2011. Here's a chilling quote from the slides.

"APP has not been able to secure Precedent Agreements with Shippers at this time"

No shippers, no buyers, no project. Tony Palmer, TransCanada VP was unable to show proof of project viability to lawmakers in testimony to the Alaska Senate Resources committee on Tuesday (LINK). Point Thomson is identified as the major sticking point. According to TransCanada:

"Resolution of Pt. Thomson and gas fiscals are essential to commercial success"

A solution to that problem may be in the works (LINK to Alaska Dispatch). Alaska Dispatch ran the Point Thomson story on the 15th however other news outlets have been slow to grasp the significance of an agreement on Point Thomson. The Fairbanks New-Miner has a followup story with no new content (LINK).

We do know that ExxonMobil has drilled a couple of wells (PTU-15 and PTU-16) in recent times and has plans to produce condensate as early as 2014. (USACE EIS LINK). At a minimum Exxon has more data and is in a good position to negotiate with the the Department of Natural Resources. (LINK to a good description of Point Thomson).

Sometimes it seems like this project is all lawyers, politicians, and guys in nice suits. It's good to see at least one outfit (Exxon) is out there, boots on the ground, building, drilling, hiring and making tangible progress. With a little luck maybe their success will get the ball rolling.

2011 Alaska Gas Line Forecast

The big story for 2011 will be the results of the 2010 open seasons. Each pipeline project (APP* and Denali) will complete and execute precedent agreements where shippers make long term commitments to ship gas. Prediction: With a little luck we’ll hear some positive news on these agreements before the Nenana ice goes out (late April-ish).

To date we know that TransCanada (APP) did not meet its target for binding agreements by the end of 2010 (Fairbanks News-Miner 07 Dec 10). Imagine the difficulty of signing a binding contract loaded with conditional statements about tax rates, project mergers, the price of steel and long-term gas supply agreements. The project cost is also at risk due to uncertainty of interest rates. One day the Federal Reserve might just run out of ink and stop printing free money. That will jolt the bottom line of the project, although a small interest rate jolt might push the project in the right direction and cause a sense of urgency.

Maybe the APP delay is not a bad signal. The TransCanada AGIA proposal included a very notional estimate of the LNG option. It might take longer to execute the agreements if a viable shipper seeks to ship gas on a Y-Line LNG plant option smaller than the options outlined in the TransCanada AGIA base cases. For all we know a viable shipper may have bid to take gas off at Glennallen for in-state use. Prediction: Expect a viable shipper for a 7 MMTPA Valdez LNG plant, that's roughly equal to 1 BCFD, or half the notional capacity described in the TransCanada AGIA proposal.

The next big milestone, not shown on any official schedule, is the merger of the projects. The producers (ExxonMobil, ConocoPhillips, and BP), TransCanada and some surprise as yet unnamed shippers all know that they must converge at some point. Prediction: Project merger announcement in late 2011.

Of course my glass is half full, maybe two out of three of these predictions will come true. Best wishes for a happy and prosperous 2011.

*Nomenclature Note: Henceforth I’ll use the name “APP” to describe the Alaska Pipeline Project instead of TransCanada-ExxonMobil+AGIA.

Running Late

The AP and the News-Miner reports that TransCanada's gas line negotiations are running late:

TransCanada Corp. says it may not meet its target of securing binding agreements by year's end for a major natural gas pipeline in Alaska, but the company remains optimistic about the prospects for its project.

TransCanada spokesman James Millar told The Associated Press on Tuesday that officials are pleased with negotiations with gas producers so far, but the process is complicated and takes time. In spite of an official's earlier stated target of having precedent agreements by year's end, he said TransCanada's concern is less on an arbitrary clock and more on ensuring that negotiations are undertaken prudently.

He said it's too early to say whether there will be a need for another open season, during which gas producers are courted and shipping commitments are sought.This does not sound promising.

It's like watching paint dry.