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?

This Just In..................

No (productive) Alaska LNG news these days so here's some news of a North Slope producer with plans to build 15 - 30 MTPA of capacity in British Columbia:

Globe and Mail Exxon plans to spend up to $25-billion to export B.C. LNG

Project Description

It's early days, but Alaskans need to take note and let this one soak in. The investment and project magnitude is on par with Alaskan LNG, but Exxon / Imperial are moving forward in B.C.

Early days, but British Columbia may beat Alaska in the LNG race.

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.

SB - 138 Signed

Alaska Governor Sean Parnell has signed SB-138, the legislation that may enable the Alaska gas pipeline and LNG plant.

Link to Press Release

The Big Proposal

SENATE BILL NO. 138 (LINK)

State equity participation: up to 25% (LINK)

Is Exxon Happy?  Maybe, the 2013 Q4 press release mentions the Alaska LNG project (LINK) 


SB 138: Commercial Production of North Slope Gas SECTIONAL ANALYSIS 


SB 138

The BIG Agreement

Memorandum of Understanding (MOU)

Heads of Agreement (HOA)

AGIA TERMINATION / SKIN IN THE GAME

 Ding Dong AGIA is dead. Any predictions on the degree of State participation?  I'm guessing an eighth or more.  An eighth would equal $7.5 billion which should be a manageable figure for the state.

Why this is Good:

1. AGIA may have worked in a shale gas free world,but it was absolutely doomed after shale gas gathered momentum in the lower 48.

2. State participation gives the project better financing  options and terms.

3.  Alignment - State interest are better served as partners.

4.  Revenue - as an investor the State stands to receive a return on the investment.

5. Agreements are forthcoming - I have to assume the Governor wouldn't make this announcement unless the grand deal was about to signed.

6.  A Flat Gross Tax on gas sounds like fiscal certainty at long last?

What would make this better:

1. LNG Buyer participation - nothing says that won't happen, but LNG customer participation could strengthen the project. 

What could go wrong:

1. Just about anything and everything can go wrong at this stage.  The problem with grand deals is that somebody or group will feel left out or abused by the deal, then the lawsuit phase of the project begins.  I hope the project survives that stage but hang on to your hat.

Good luck Governor, this is a big step in the right direction.


Press Release from Alaska Governor Sean Parnell (LINK), text:

January 10, 2014, Anchorage, Alaska – Governor Sean Parnell today announced that the State of Alaska will pursue becoming an equity partner in the Alaska LNG project. The governor also announced the state will terminate its involvement with TransCanada as its licensee under the Alaska Gasline Inducement Act (AGIA), and partner with the company in a more traditional commercial agreement.

“For the first time in our state’s history, the framework is in place to build an all-Alaska gasline on Alaska’s terms and in Alaskans’ interests,” Governor Parnell said. “We have all the necessary parties to make an Alaska gasline project go - three producers, a pre-eminent pipeline builder, an entity in AGDC that can carry Alaskans’ interests, and state agencies responsible for the royalties and taxes.”
The governor stated he soon expects a commercial agreement, known as a Heads of Agreement, for the Alaska LNG project. The agreement is anticipated to be signed by Exxon, BP, ConocoPhillips, TransCanada, the Alaska Gasline Development Corporation (AGDC), and by the commissioners of the Departments of Revenue and Natural Resources. The Heads of Agreement will be subject to public review by the Legislature.

“As a partner in the gasline project, Alaska will control its own destiny,” Governor Parnell said. “Ownership ensures we either pay ourselves for project services, or negotiate and ensure the lowest possible costs. As a partner, Alaskans stand to gain more.”

Governor Parnell also intends to introduce legislation addressing how the state will manage its gas resources by authorizing the Department of Natural Resources to modify certain leases, and enter into shipping agreements to move and sell the state’s natural gas. The legislation will propose moving from a variable net tax to a flat gross tax for North Slope gas, allow certain leases to pay production taxes with gas, and enable the Departments of Revenue and Natural Resources to manage the state’s gas revenues.

“While most Alaskans have seen past efforts to develop a large gas project falter for various reasons, this time is different,” Governor Parnell added. “AGDC is our ‘ace in the hole,’ meaning we can still opt for the smaller volume ASAP project.”
###

Video

Alaska South Central LNG (SCLNG) Project update.

Project update.  MAY 2013 (LINK) 

FEB 2013 (LINK)

Really?

Seriously, this is a "project progress report"?

LINK

The report reads like a project close out report - all done.

Northern Alliance

I didn’t see this coming. Looks like a crafty deal. Possible new source of capital for the Alaska gas line?  Coordinated development of the Arctic. Free market at work - gotta love it




Exxon-Mobil Rosneft Arctic Deal LINK

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.

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.

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."

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.

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.

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.

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

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)