A Japanese consortium wants to invest in the latest mega-proposal to ship and sell Alaska's lucrative natural gas -- and promises to look for buyers in Japan -- bringing unprecedented opportunity to the long-sought proposal, state officials said.
But don't get your hopes up, Alaskans. Efforts to tap the state's giant natural gas fields and diversify its oil-addicted economy have dragged on for decades, and one longtime observer suggests history could repeat itself yet again.
But Lt. Gov Mead Treadwell said critical elements are different this time as the state plows ahead simultaneously with two gas projects -- the bigger, industry-backed line and the smaller so-called "bullet line" the state alone is currently pursuing.
It's unlikely both projects will survive. But the one that does will rely on gas exports, as well as a potential buyer of the sort now knocking on the state's door, he said. "It's a very good sign" that credible investors from Japan, who have helped advance other liquefied natural gas projects to increase Japanese imports, are offering to find buyers for Alaska's gas and help pay for a project, the likes of which could top $65 billion.
Missed opportunity
Treadwell knows whereof he speaks. He once was an executive for Yukon Pacific, the company that more than a decade ago studied basically the same projects now being considered: shipping natural gas down a roughly 800-mile pipeline, providing some gas to Alaskans, chilling the remainder into a liquid in Southcentral Alaska, and shipping it overseas by tanker.
That project began to wither in 2001, when the state's major oil producers said it wouldn't pencil out, according to news accounts. They supported a much longer pipeline slicing through Canada, roughly along the Alaska Highway, to deliver North Slope gas to markets in the Lower 48.
Former Gov. Tony Knowles was loudly on board with the oil producers, proclaiming, "My way is the highway," as was former Gov. Frank Murkowski when he took over in 2002.
Murkowski's lack of support was the final straw after Yukon Pacific, a division of international transportation giant CSX, had spent hundreds of millions of dollars on studies, said Jeff Lowenfels, former Yukon Pacific president.
Yukon Pacific had lined up buyers in Korea and Taiwan. But the major oil producers -- sitting on 35 trillion cubic feet of proven gas reserves and likely much, much more -- weren't going to sell the gas.
"If you don't have the oil companies on board, you don't have a project," Lowenfels said. "We learned that the hard way. They teased us, saying they're studying it, but they let us down in the end."
The state's major producers -- BP, ConocoPhillips and Exxon Mobil Corp. -- still hold the keys to all that gas, through their long-term leases at some of the largest oil fields in North America.
If that project had launched, the state would today be shipping so-called LNG -- liquefied natural gas -- and be well ahead of numerous projects ramping up across North America and the world, Lowenfels said.
"Not only would we be in the LNG business, we'd be one of the biggest LNG projects in the world, and, more importantly, we'd be supplying gas to Alaskans," said Lowenfels.
Notable partners
But hey, let's be optimistic. Maybe Alaska's gas will finally be freed.
Japan, the world's third largest economy, is on the hunt for new forms of energy after the 2011 Fukushima disaster, but natural gas is costly there. And Alaska, its oil production dwindling, is increasingly hard-up for the next big project.
Resources Energy Inc. (REI) is the Japanese suitor now calling after Alaska. Partners in the consortium include Hyogo Prefecture, the administrative division that includes Tokyo; Nippon Telegraph and Telephone, one of the world's largest telecommunications companies; Mitsubishi Gas Chemical Co., Toyo Engineering, and several small utilities.
The consortium recently completed a feasibility study proving up the viability of two project options. It's now working on lining up Japanese buyers.
The smaller-scale project calls for a 36-inch pipeline to Nikiski. The large-scale project calls for a 42-inch line running from the North Slope to Valdez. Both lines would have off-take points to serve demand in Alaska.
The large-scale concept is generally the same idea being considered by the producers, who are working with pipeline builder TransCanada Corp. under an exclusive agreement with the state.
But REI calls for a more aggressive schedule, with the work finishing by 2019 instead of 2023. And REI calls for a project that ramps up over time, starting at exporting 5 million tons annually but growing to 20 million tons.
The consortium is most interested in investing in the "downstream" end of the project, the liquefaction plant and the shipping related facilities, said Mary Ann Pease, REI's vice president and an Anchorage resident.
But they're open to all possibilities, including partnering in the pipeline. They believe investing will help guarantee a stable supply of gas that lasts decades, for an amount that's cheaper than current prices, she said.
If gas prices don't come down in Japan, "it's going to be a crippling blow to their economy," she said. "So they're hugely interested in the investment and infrastructure that could mutually benefit Alaska, the producers and Japan."
But the state needs to move quickly, she said. Several new LNG projects are in development around the world and could be shipping liquefied gas to Asia by 2020.
"If Alaska wants to remain competitive in the LNG market, bringing Alaska's gas on line before 2020 is critical," she said. "Wait until 2025, and I'm sorry, you've missed your opportunity."
REI estimates the large-scale project will cost about $45 billion. That's the low-end of the range -- $45 billion to more than $65 billion -- proposed by industry for their large-scale concept.
Despite that huge price tag, the hardest part of the project won't be building costly facilities or getting permits, Pease said.
"It will be securing the gas needed for a project of this size and magnitude."
Big Three mum
That's where BP, Conoco and Exxon come in.
REI officials have met with the oil giants to pitch their idea. They've also talked with TransCanada.
Pease said getting gas from the Big Three could be difficult because they have LNG projects around the world that compete with Alaska's gas, and they might be interested in selling gas to Japan from those other projects first.
Alaska Dispatch sent an email to oil company spokespeople asking whether they'd be interested in selling gas to REI or partnering with them.
Two spokespeople for Exxon, which holds the largest natural gas reserves on the North Slope, didn't reply. A Conoco spokeswoman merely said the oil giant is working with BP, Exxon and TransCanada on the large-scale LNG project. A BP spokeswoman said the company remains focused on the large-scale project, and wants to get the highest export price so Alaskans will benefit.
The one-sentence statements never mentioned REI.
Long way from reality
As for state and federal officials, they say REI's interest could help nail down Alaska's long dreamed-of gas project.
"The group is sincere and serious in trying to put together a deal, and it's always good to have more people interested in an Alaska LNG project," said Larry Persily, federal coordinator for an Alaska natural gas pipeline project.
REI's most important contribution might be bringing end customers to the table, because that's what's needed to move the project forward, Persily said.
But the plans are all "potentials and proposals" until someone starts spending hundreds of millions of dollars to prepare environmental impact statements and permit applications for federal approval, then buys the steel and other materials.
"I wish them good fortune, but it's an expensive venture," Persily said.
Déjà vu? Hope not!
As for the state, it's doing it what it can to assist REI, including introducing them to representatives of the Big Three, said Dan Sullivan, commissioner for the Department of Natural Resources.
The state has what Sullivan calls a "demand-pull" strategy. The greater the interest it can generate from potential customers, the greater the chances an LNG project will be built in Alaska.
Sullivan has worked hard to drum up that interest, meeting with REI and others, such as Korean Gas Corp. (KOGAS), the world's largest buyer of liquefied natural gas, and Tokyo Gas, the largest gas utility in Japan.
What's interesting about REI is they approached Alaska after doing their own assessment of global LNG, Sullivan said. They liked the advantages offered by an Alaska LNG project, including proximity, existing infrastructure and vast quantities of gas, Sullivan said.
"We see them possibly as a significant piece of the puzzle," said Sullivan, calling from Washington, D.C., on Friday morning, after multiple meetings about energy issues with lawmakers and top officials in Alaska.
REI could help build "critical mass" for the large-scale LNG project if it brings significant buyers to the table, said Sullivan. The state is trying to speed up the development timeline laid out by the major oil producers and TransCanada.
The effort should be nearing a phase that includes preliminary engineering and establishing a financing plan. Demand for the state's gas can accelerate the effort, and help ensure a project is built this time, he said.
To Sullivan, the effort now is unprecedented because so many stars are aligned. Not only are the major oil producers working together to study an Alaska LNG project, and not only are potential customers taking an interest, but the state's leadership is also solidly behind an LNG project.
"One of the things we're very cognizant of is trying to make sure history doesn't repeat itself," Sullivan said, referring to past projects that failed.
When Sullivan called the Dispatch on Friday, he was marooned at the airport in D.C., sans notes, his luggage lost. Weather had canceled his departing flight the day before, just as the busy Memorial Day weekend was ramping up.
Sullivan found himself in a similar situation nearly two years ago after fighting for Alaska, trapped at the airport in D.C. and struggling to get home to family for a holiday. "This is seriously déjà vu," he said.
Many Alaskans would hope Sullivan has better luck with gas projects.
Contact Alex DeMarban at alex(at)alaskadispatch.com