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Japanese consortium scouting Alaska LNG project

Amanda CoyneThe New York Times
Aaron Jansen illustration

As part of the decades-long quest for Alaska to get its vast reserves of North Slope natural gas to market through a pipeline, Alaska Gov. Sean Parnell is currently visiting Asia on the eve of an expected announcement involving Alaska's major oil and gas producers and a pipeline from the North Slope to anywhere. He’s doing so, he told The Associated Press on Friday “to work to grow demand for Alaska gas in Japan by opening their eyes to the opportunity that can come with LNG from Alaska."

Anybody who has even cursorily followed Alaska’s long, frustrating efforts to get Alaska gas to market knows that various large companies and government officials from Japan and Korea have been unsuccessfully eyeing Alaska’s natural gas for decades -- and for decades, their quest has been thwarted.

But the Japanese haven’t given up. A group called Resources Energy Inc., or REI, made up of large businesses, a bank in Japan, have been in Alaska for months trying to establish relationships and work with Alaska’s government to enter into a joint agreement to sell the state's Arctic gas to Japan. It first approached Scott Heyworth of the Alaska Natural Gas Development Authority in November. 

Since the 2011 earthquake and tsunami, which devastated a nuclear power facility, Japan has been shopping around the world to diversify its energy portfolio. REI apparently likes what it sees in Alaska.

Parnell has yet to meet with the group, and citing security concerns, his spokesperson declined to make public his agenda in Asia.

On Tuesday, however, a press release sent by Parnell’s office said he had met with the CEO of KOGAS, one of Asia’s largest gas companies, the same company that Alaska resource proponents tried to meet with late in 2010 before the governor nixed it.

It appears that Parnell has opted instead to have Alaska Department of Natural Resources Commissioner Dan Sullivan take the lead in dealing with REI.

Sullivan has had many meetings with REI, including recently in Japan, and is enthusiastic about REI’s interest.

“REI seems like a serious group and has an appreciation for Alaska’s natural gas and our competitive advantages.”

It also appears that REI, which has opened an office at the Calais building on C Street in Midtown Anchorage, is on more than a fact-finding mission. A “concept” given to various government officials dated Feb. 22 calls for REI to import from Alaska as much as 3 billion cubic feet a day. It calls on REI to build the multibillion-dollar liquefaction plant that would be needed to turn the gas into LNG, to build LNG tankers, and to invest in the pipeline that would deliver Alaska's Arctic gas to market.

Its concept involves shipping gas to Japan by 2017, said REI Alaska representative Mary Ann Pease.

REI presented the concept to the voter-created Alaska Natural Gas Development Authority, the lawmaker-created Alaska Gasline Development Corporation (AGDC), and to the Alaska Department of Natural Resources.

It also called for the state to enter with the consortium on a joint feasibility study.

In a July letter, Sullivan told the head of REI, Shun-ichi Shimizu, that “given its core competencies and legislative mandate, the Alaska Gasline Development Corporation would be the appropriate agency for REI to engage in future discussions about cooperation.” It says that it will continue to work with REI to help them with a feasibility study.

Under the auspices of the Alaska Housing Finance Corp. (AHFC), AGDC is the agency charged to develop a plan for the state of Alaska on designing, financing, constructing and operating an in-state natural gas pipeline. Currently, that plan involves the so-called "bullet line" that would take gas from the North Slope and deliver it to Southcentral Alaska.

Dan Fauske, the head of AGDC and AHFC, has met with REI officials. But because the agency is hampered by a specific legislative mandate, and because of an impending announcement from the governor involving its possible role in any alignment between potential gas producers, the agency hasn't been able to partake in a feasibility study.

Pease sees timing as critical.

“There are so many different competing projects out there,” she said, citing projects in Canada, Russia and Indonesia in which Japan has already announced involvement or interest. “We certainly hope to have a more formal relationship with the state of Alaska as we go forward,” she said, adding that Sullivan has been very encouraging.

Asia ‘confused and amused by Alaska’s dealings?’

Over the past 40 years, Alaska politicos and bureaucrats have been busy fighting over which route a natural gas pipeline should take, and Asia has had a front row seat.

Some years the plans have involved running a pipeline through various parts of Canada and down to the Lower 48. Other years plans called for an "all-Alaska" line to the deepwater port in Valdez, where the gas would be liquefied and shipped to Asia.

The planners have been planning since 1976. Alaska still doesn’t have a pipeline, and aside from a small amount of Cook Inlet LNG exported to Japan, Asia is still without Alaska natural gas.

Throughout the 1980s and the 1990s, Yukon Pacific Corp. took the lead on exporting Alaska’s North Slope natural gas to Asia. Yukon Pacific was founded by the late Govs. Wally Hickel and Bill Egan, both of whom were convinced that a market for LNG in Asia was the way of the future. Many in Alaska’s business community (and some in the media) scoffed at them.

Eventually, their plans caught the attention of transportation giant CSX Corp., which took majority ownership in the company.

Yukon Pacific conducted an environmental impact statement. It secured permits for the project and authorizations from then-President Ronald Reagan and the U.S. Energy Department to market Alaska-produced liquefied natural gas to Asian buyers. Arco Alaska Inc., Phillips Petroleum, Foothills Pipe Line Ltd., and the Japanese conglomerate Marubeni Corp. signed on. It had had preliminary orders for gas from Korea and Taiwan, and Japan was set to come on board. It didn't have the gas, but the thinking was that the producers would have to sell if customers were secured and everything was lined up. 

But then Asian market softened, BP bought Arco, and later Conoco and Phillips merged. Those companies had ideas of their own, saying an LNG project wasn’t feasible. LNG backers said the companies were balking because they didn’t want Alaska gas competing with their other Pacific gas fields, but Gov. Tony Knowles went along.

“My way is the highway,” he announced in 2000, referring to the non-LNG pipeline route that would follow the Alaska Highway, then cut into Canada, into the Mackenzie River delta, and down to the Lower 48. This route, he promised, would have a "multiplier effect of billions of dollars of investment within our borders."

That rang the death knell for Yukon Pacific, said its former president, Jeff Lowenfels.

Yet, about 10 years later, the plan is LNG to Asia once again. 

At this point, Japan is likely “thoroughly confused and amused by Alaska’s dealings,” Lowenfels said. "It's so sad. Right now, all of Alaska could be powered by natural gas. We could have been ahead of fracking."

Contact Amanda Coyne at amanda@alaskadispatch.com