LNG Customer Meets with Governor Parnell

We need more stories like these - KOGAS CEO meets with Governor Sean Parnell (LINK).

Alaska Governor Sean Parnell and Mr. Kangsoo Choo, the Chief Executive Officer and President of Korea Gas Corp (KOGAS)

From CEO  Mr. Kangsoo Choo KOGAS website :

Expansion of participation in overseas network projects
We are assertively expanding participation in overseas network project in joint-venture with private sector. On the foundation of design/construction/operational technology and specialized manpower for production and supply facility, which are the core capacities of KOGAS, we will nurture KOGAS to become reputable gas major in the world by not only expanding construction and operation of overseas LNG terminal, LNG liquefaction plant and pipeline network but also by playing the role of bridgehead for advancement of domestic enterprises into overseas market..

Sounds like an equity partner for the LNG plant?

KOGAS is also a take-or-pay buyer of the Cheniere Energy Sabine Pass LNG project.  So far the Cheniere business plan for the Sabine Pass LNG plant seems to be working, i.e. long term take or pay contracts to pre-sale the LNG product.

 More on the same story from LNG WORLD (LINK)

Other tidbits -

Canadian competition: Petronas working on BC LNG (LINK)

Washington Post article on the market for US LNG (LINK)

ExxonMobil Energy outlook (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.

A Good Week

Good news #1.  Alaska Governor Sean Parnell is making the rounds in Korea and Japan doing what an Alaskan Governor should have been doing since the price of natural gas tanked four years ago.  The Governor's web site features a picture of the Governor smiling, standing next to the US Ambassador to South Korea. That's worth one cowbell, but no more.  Next time the photo op needs to include a living breathing smiling LNG customer.  LNG buyers are making a push to de-link LNG prices from crude oil prices (LINK).  This could be the right time to offer the first delinked LNG supply.  Imagine a long term contract based on cost plus a fixed fee with cost escalators to track inflation rather than the roller coaster linkage to crude oil prices.  Reduced risk for the buyers, producers, and transporters should make a project more appealing.  It's time to get creative Governor.  Buyers want to commoditize LNG - run with that.

Good news #2  Great Bear wants to accelerate their drilling program. Actions speak louder than words.  Keep it up!

September is drawing to a close - still hoping for some more good news.