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.

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.

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.