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Alaska LNG project companies miss Parnell's deadline

Alex DeMarban

Weeks after winning a massive tax break from Alaska, the state's major oil producers hinted at the need for another tax deal, this one involving natural gas production.

At the same time, BP, ExxonMobil and ConocoPhillips, along with pipeline builder TransCanada, missed a key deadline laid out by Gov. Sean Parnell in the effort to tap the North Slope's vast natural gas reserves.

Parnell, the leading proponent of this year's $750 million oil-production tax cut, had wanted those companies to release an agreement by Friday saying they would conduct preliminary engineering and design work -- known as pre-FEED -- for a liquefied natural gas project.

The idea was that they would spend hundreds of millions of dollars on that phase. The project currently calls for shipping North Slope natural gas down an 800-mile-long pipeline, and liquefying it at a Southcentral Alaska coastal port for export to overseas markets, perhaps Asia.

Instead, the companies met a different Parnell benchmark that was easier to achieve: They committed to spending between $80 million and $100 million by the end of this year, and conducting field work this summer. Much of that money will likely be paid for by the state, under the 2008 state agreement that offers licensee TransCanada up to $500 million in state money to advance a natural gas project.

Despite missing the benchmark, the companies touted their progress and said they were committed to the liquefied natural gas project.

Natalie Lowman, spokeswoman with ConocoPhillips, said the companies noted in a letter to Parnell last fall that numerous factors could delay plans.

Currently, the companies are "working on the agreements that will enable initiation of preliminary engineering," she said.

”We have made substantial progress (and spent considerable dollars) to date since the Southcentral LNG effort was announced in early 2012, and are serious about this project," she said.

Republican Parnell challenger Bill Walker, an oil and gas attorney and critic of the tax cut, blasted the delay. "The multi-billion dollar tax cut the leaseholders received with passage of Senate Bill 21 in April is apparently insufficient to secure the governor's benchmarks for this critical project," Walker said in a statement.

"Today's failed benchmark is a consequence of handing the wheel to others whose best interests do not always align with Alaska's best interest," he added.

Color him concerned

Parnell also wasn't pleased. The plans released by the companies on Friday suggest they have not "budgeted or allocated hundreds of millions of dollars related to pre-FEED, which is what they have previously indicated is required for this phase of the project," he said in a statement.

Parnell said he's also "concerned" that the limited spending does not extend beyond the end of this year, and added that the project is moving ahead more slowly than Alaskans expect.

Larry Persily, the federal gasline coordinator, said the project partners remain on track for a project of this size, estimated to cost between $45 billion and $65 billion, or even more.

"The painful reality for Alaskans who are waiting is that's how long it takes to put together customer agreements, fiscal terms, commercial terms, environmental statements and all these other details," he said.

The project may face plenty of competition. Liquefied gas projects are under construction around the world, including several in Australia as well as one in Louisiana and Papua New Guinea. Meanwhile, more than 30 additional LNG projects are being considered around the world, with more than a dozen proposed in the Lower 48, piquing fears that the Alaska project will be deemed uneconomic by the time the studies are done.

An official with Exxon said recently that a decision on building the project won't come for three to four years.

That pace is similar to the progress being made on several other LNG projects under consideration, including on Canada's west coast, Persily said.

"Alaskans should be realistic," he said. "The companies don't know enough to write a $50 billion check. And you won't spend hundreds of millions of dollars until you're more comfortable it's a good investment."

Another year, another project

It was just a little over a year and a half ago that the oil companies and TransCanada put the brakes on a pair of projects that would have shipped the North Slope's ample gas reserves through Canada for use in the Lower 48. The current LNG project builds on those past efforts, and the $700 million the companies have spent on various projects since at least 2001, Exxon said in the announcement.

Those past attempts included "Denali -- the Alaska Gas Pipeline Project," a partnership of BP and ConocoPhillips that cost more than $150 million in studies and other work before it was dumped.

The Alaska Pipeline Project -- involving TransCanada and Exxon -- cost more than $288 million, with more than $94 million reimbursed by the state under the license with TransCanada.

In fall 2011, Parnell urged the four companies to join forces and begin studying the LNG-to-Asia concept.

To make the LNG project viable, the state must create "a competitive, predictable and durable oil and gas fiscal environment," the announcement from the companies said. Legislators are expected to begin working out such terms, for gas production, next year.

As for the field work this summer, it will employ 150 people to collect and study environmental and scientific data along 400 miles of a proposed pipeline route north of Livengood in the Interior. That’s considered the northern half of the line.

The summer work will provide "detailed knowledge of the route, including information on fisheries, stream hydrology, water resources, wetlands mapping and socioeconomic assessments to support potential permit applications," the announcement said.

Key steps still missing

Exxon said recently that it's moving forward on developing Point Thomson, a gas field on the North Slope considered critical to a major LNG project.

Plans are on track to produce natural gas liquids from the field -- the state has called for 10,000 barrels a day of initial production under an out-of-court settlement -- by the winter of 2015-16, said Kimberly Jordan, an Exxon spokeswoman.

This winter, more than 1,200 workers from 35 companies participated in the project, installing hundreds of vertical support members to carry a 22-mile pipeline, she said.

Work is continuing this summer to complete and certify an airstrip and commission a permanent camp that will house up to 200 people, she said.

Parnell noted the work at Point Thomson, saying it was important to the LNG project. Still, the companies have yet to take several key steps, including selecting an end location for the liquefaction plant, such as Valdez or Nikiski. They’ve also not altered the terms of the state agreement to officially sanction the LNG project, making state officials increasingly wary.

Asked if the companies were behind schedule on changing the state license, Natural Resources deputy director Joe Balash said recently: "I wouldn’t characterize it that way, but I think Alaskans are probably of the view that they're about 20 years behind."

Contact Alex DeMarban at alex(at)alaskadispatch.com