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Engineering studies to begin on Alaska LNG project

Alex DeMarban

ConocoPhillips, BP, Exxon Mobil Corp. and other parties have signed an agreement to advance the state’s long-sought multibillion-dollar liquefied natural gas project. 

The signing of the agreement will allow the parties to move toward a permitting phase and to conduct work that will be needed to apply for a license to export the North Slope’s massive natural gas reserves.

But the project remains a long way from reality. The new agreement will precede a second phase of work, expected to start in 2016, that will require another agreement and approval from the Legislature.

Production won’t begin until 2025 or 2026, said Dan Fauske, president of the Alaska Gasline Development Corp.

Still, the signing was important enough that Gov. Sean Parnell called it a “milestone” in a press release sent Wednesday afternoon. The project is considered pivotal in an oil-dependent state that has seen crude production fall over the last quarter century.  

“Environmental and pipeline engineering fieldwork has officially begun,” Parnell said in the statement. “I am pleased all parties continue to make progress on building an Alaska gasline project that will create thousands of Alaska jobs and fuel Alaska homes and businesses.”

In addition to the North Slope’s largest oil producers, the agreement was also signed by pipeline builder TransCanada and the Alaska Gasline Development Corp.

Moving forward on the project is important. Natural gas demand is growing globally, and production has increased in the Lower 48. Dozens of other LNG projects are in the works around the nation and have filed plans with permitting agencies.

The $40 billion to $65 billion Alaska project -- calling for a roughly 800-mile pipeline from Alaska's North Slope, as well as a liquefaction facility at Nikiski to super-chill the gas to a liquid so it can be exported in tankers -- has not filed for permitting.

The state has for decades sought a gas line that could carry the North Slope’s massive natural gas reserves to markets. Numerous projects have failed over the years.

No other effort has reached this phase, with a deal to fully enter Pre-FEED, or pre-front end engineering and design, the statement said. In that phase, the “producer parties” will spend hundreds of millions of dollars on design and engineering of the project, said the press release.

The newly signed deal is essentially a cost-sharing agreement, said Fauske.

The oil producers will pick up about three-quarters of the pre-FEED bill, with the state and TransCanada covering about one quarter, according to Fauske. The plan is for the state to have equity in the entire project, Fauske said.   

The details of the agreement were laid out on the night of June 30, the day of a nonbinding state-set deadline, Fauske said.    

A more advanced stage known as FEED is expected to start in 2016 if the project remains on track.

In the coming weeks, the parties will begin working to secure an export license with the Department of Energy, the statement said.

The Department of Energy has already permitted six LNG terminals for non-free-trade-agreement exporting, but the only one under construction is Cheniere Energy's Sabine Pass project in Louisiana.

Permitting work required by the Federal Energy Regulatory Commission will also continue.

Fauske said he’s optimistic the project will one day become reality.

“I can’t deny there are variables out there,” he said. “I remind Alaskans these are business decisions the companies are making. They don’t make them based on the fact we’re very nice people.”

But Fauske said the companies engaged in the project are making a sincere effort.

“I have full confidence they have honorable intentions,” he said. “That’s a world class asset and to them, it’s an asset sitting in ground and their shareholders will ask, ‘What are the options of developing that asset?’" 

Contact Alex DeMarban at alex@alaskadispatch.com.