The liquefied natural gas export project being pushed by the Parnell administration would be one of the biggest in the world at a cost that could exceed $65 billion and would bring vast amounts of Alaska's North Slope gas to commercial markets -- fulfilling a 40-year quest of state leaders.
But even top officials admit the progress touted this week doesn't amount to a commitment, the work left to do is immense and the project may never materialize.
Gov. Sean Parnell late Wednesday released a letter, project work plan and proposed schedule sent to him by executives with the North Slope's three major oil producers and a pipeline company addressing a goal from his January state-of-the-state speech to show progress and identify a project timeline by Sept. 30.
"There are always bumps in the road. And certainly no guarantees. There's no guarantees now," Natural Resources Commissioner Dan Sullivan told reporters Thursday. "But we've already traveled a good distance in a short amount of time since that state of the state, and our intent is to keep that pedal to the metal working with all key stakeholders and to try to realize this very significant opportunity."
Already, Exxon Mobil, Conoco Phillips, BP, and pipeline company TransCanada Corp. say they have a team of more than 200 people working on the Alaska LNG project. BP has the lead role on the commercial side, with Exxon the technical lead.
Among the key issues:
• Project cost. Executives with the oil companies and TransCanada Corp. told Parnell the project could cost $45 billion to $65 billion or more. The figure doesn't include inflation.
Larry Persily, federal coordinator for Alaska natural gas projects, joked that people will try to figure which is higher: the LNG project or "the New York Yankees payroll."
Two years ago, TransCanada told potential natural gas customers an 803-mile pipeline to Valdez, plus a treatment plant to extract water and impurities from the gas, would cost $20 billion to $26 billion. The main difference is that the new proposal includes the cost of a natural gas liquefaction plant, according to Tony Palmer, TransCanada vice president.
At a plant, methane would be super-chilled to about minus 260 degrees, the temperature at which it is transformed into a liquid form for shipping. Sullivan told reporters the new figure "includes the entire project." But it doesn't include the cost of 15 to 20 tankers, BP spokeswoman Dawn Patience said.
"That range wasn't terribly surprising but we're focused on keeping it on the lower portion of that broad range," Sullivan said.
So far, the Parnell administration supports private financing of the pipeline, with the state in a regulatory role, said Kurt Gibson, director of the state gas pipeline office.
• Timing. Sullivan said the state has a sense of urgency and is pushing for accelerated work. For instance, development of North Slope gas was held up for years by litigation over the huge, remote Point Thomson oil and gas field, operated by Exxon Mobil.
Settlement of that dispute earlier this year included an incentive for a pipeline investment decision by mid-2016, which fits the new timetable, Sullivan said.
But that still puts off a decision on whether to build the pipeline for four years. Construction would be five or six years from now, under the timeline. And in the meantime, competing LNG projects around the world are moving ahead.
• Export terminal and LNG plant. The oil companies and TransCanada say they are evaluating 22 possible sites in Southcentral Alaska for an LNG plant, including locations in Cook Inlet, Prince William Sound, and others.
The community of Valdez has long pitched itself as the best site for an Alaska export terminal; backers hosted an LNG conference there just last month. But other communities will also be in contention to claim a portion of the 1,000 permanent jobs the LNG project is expected to bring. The first, and still only, LNG export plant operating in the United States is in Nikiski, home to House Speaker Mike Chenault.
The first decision point would come in about a year, according to the new timetable.
"There's nothing substantial to get excited about. It's a preliminary review," said Sen. Bert Stedman, R-Sitka and the co-chairman of the Senate Finance Committee as well as a member of the Resources Committee. "It's just good they are going forward, so don't misinterpret what I'm saying. But they are not even to the first point of a decision on whether they should go to the next gate or not."
The LNG project will likely be used to renew the heated, and sometimes tortured, debate in the Legislature over whether to cut oil taxes. Parnell, who has said big tax cuts are needed to spur new development and stop declining oil production, pushed legislation this year that would have cost the state up to $2 billion a year in oil revenue. Senators said the cuts failed to guarantee new investment and balked at his bill.
"A development of this scope and magnitude must be accompanied with a stable, healthy oil business underpinned by competitive gas fiscal terms," Exxon spokesman David Eglinton said in an email Thursday. BP and Conoco also want new "fiscal terms."
The Parnell administration is still discussing what tax changes to propose in 2013, officials said.
Stedman noted that Alaska's current tax structure may actually mean less revenue for the state if natural gas is produced in large quantities. Oil and gas are now joined in the same tax scheme, and at times of low gas prices and high oil prices, oil companies may see their taxes drop even with no change in rate.
Under the gas pipeline being proposed -- big enough to transport 3 to 3.5 billion cubic feet of natural gas a day -- "I would expect that number to be a billion to $1.5 billion, negative," Stedman said, estimating the loss to the treasury under current oil and gas prices.
But state and oil company officials say other factors would come into play if there's a way to get gas to market, including more exploration which could lead to more oil production.
TransCanada, which holds an exclusive state license for a pipeline project and can be reimbursed up to $500 million from the state for its work, last month tested the market for interest in gas from an Alaska LNG project or a pipeline from Alaska through Canada to the Lower 48. Palmer said he cannot divulge specifics of the non-binding solicitation, but said there was substantial interest "in becoming a future customer of the project."
The potential customers were "in a broad range of industry sectors located in both North America and Asia," Palmer said.
A separate project for a smaller, in-state pipeline is continuing as well, in case the big pipeline never happens. Parnell had directed the Alaska Gasline Development Corp. and the TransCanada project to see if they could consolidate. But both projects are still needed, in case the big pipeline never happens, said Gibson, the state official whose office oversees the big gas pipeline project.
So far, TransCanada has been reimbursed about $200 million from the state. The Alaska Gasline Development Corp. has a budget of $21 million for this year.
Reach Lisa Demer at firstname.lastname@example.org or 257-4390.