Alaska News

Alaska LNG project chugging along, but uncertainties remain

Officials with ExxonMobil and the Alaska LNG project flew with reporters last week to the Kenai Peninsula where efforts are underway to study what may become one of the world's largest energy projects.

It was the second such trip for the media in less than three months. In late July, ExxonMobil footed the bill to fly journalists to a field in the Arctic that may one day provide much of the natural gas for the project. The effort is estimated to eventually cost between $45 billion and $65 billion.

On Thursday, Alaska LNG -- a consortium made up of the state, a pipeline builder and three major oil companies including Exxon -- paid for the trip to a wooded area near the Kenai Peninsula community of Nikiski, where a massive plant that would super-chill natural gas into a liquid might be built.

Both trips had the potential to color statewide elections just a few weeks away, as they showed major projects moving ahead, if slowly. The August primary election saw voters approve Senate Bill 21, an oil tax rewrite passed by the Legislature and primarily benefiting Exxon, BP and ConocoPhillips, the major oil companies involved in the LNG consortium.

On Nov. 4, voters will consider gubernatorial candidates with different approaches to the oil industry, including Gov. Sean Parnell, who introduced Senate Bill 21, and Bill Walker, who says he won't be beholden to Big Oil.

Officials with Exxon said emphatically the media tours were not politically motivated. The first visit to the Point Thomson field came when it did because of a lull in a busy work schedule. The latest trip came in part because numerous meetings will be held along the pipeline route in the coming weeks, bringing out-of-state officials to Alaska.

"We're just trying to educate people about what's going on," said Steve Butt, Alaska LNG senior manager and an Exxon employee who has helped bring major LNG projects on line in Qatar, the world's largest LNG-exporting country.

There's a lot to educate people about. With Alaska's once-mighty oil production dwindling and the state facing multibillion-dollar deficits, the Alaska LNG project is perhaps the most promising thing going, though a project timeline shows construction is still four or five years away.

Butt has labeled the effort a "giga-project," and said nothing similar has ever been permitted in the U.S. It encompasses multiple projects that would be daunting on their own, including an 800-mile pipeline and the liquefaction plant.

This project is different than past failed efforts to tap the North Slope's natural gas because it brings the major gas owners together, the oil companies with the state.

"It's important for Alaskans to remember they are potential owners in the project," Butt said.

Timing is important, he said. With Alaska's massive oil fields aging, a new era approaches where the gas that for decades was pumped back into the ground can be skimmed off for 30 or more years and sold to budding LNG markets in Asia. Underground pressure can be maintained in North Slope reservoirs to continue forcing the valuable oil to the surface. If the gas had been removed decades ago, as many Alaskans have wanted, pressure would have been lost and oil production would have suffered.

"I know there's a sense in Alaska that, boy, we should have been exporting gas a long time ago," said Butt. "But if all the gas had been taken off the North Slope earlier, the largest industry in Alaska would be fishing."

Reporters Thursday saw one of three boats studying the sea bottom beneath Cook Inlet to help determine an undersea pipeline route toward Nikiski. They also saw part of the 300 or so acres of land acquired by the project southeast of the Nikiski ?industrial area where ConocoPhillips' old LNG plant sits. That plant was the world's largest when new 45 years ago, when the LNG industry was young. It reliably sent LNG to Japan for decades.

The Alaska LNG plant would be many times larger and weigh about a quarter-million tons, Butt said. The ground beneath it must be solid, and on Thursday, men in safety vests operated a truck-mounted drill rig to collect soil samples for analysis.

It was the eighth such hole the project has drilled in the area, with perhaps 90 more to go. The ground so far appears adequate, an official said. The same kind of work has happened up and down the pipeline route, with more than 1,500 holes punched.

Alaska LNG might acquire up to 800 acres in the area, though the footprint of the facilities would be much smaller. The extra space would protect residents. One potential buffer, he said, are keeping trees between the plant and neighborhood. "I think an LNG plant is OK to look at, but not everyone does. So you want that space to be a good neighbor."

Project officials plan to avoid using eminent domain. Butt stressed that organizers are working closely with landowners and others who must be treated fairly.

Still, there is concern, including among commercial setnetters who fish for salmon at nearby Salamatof Beach. Two huge vessels that would ship the liquefied gas to Asia could be docked at the site at any one time. Setnetter Tony Jackson said he and others want to make sure salmon runs and beach access for fishermen are protected.

Officials and fishermen have interacted positively so far, he said, but setnetters worry things could get sticky as more land acquisitions take place. And while the fishermen welcome the economic activity the project would bring, they're fearful of losing fishing businesses that have supported families for generations.

"Our concern -- and I say our because I've spoke to a number of setnetting neighbors -- is let's face it, big oil generally gets what big oil wants," said Jackson. "We're not just the little guy going up against one giant. It's Exxon, Conoco and BP."

Butt said the process to receive federal permits includes important safeguards. The Federal Energy Regulatory Commission will drive the effort to hear and address concerns, with numerous other agencies involved, creating an objective process allowing concerns to be aired freely.

"FERC will own the community engagement process early next year," Butt said. "We want that process to happen in a way that FERC gets all the facts and nothing but the facts. They go Perry Mason on everybody, and we want that. We don't want to find out in three years that there's some unresolvable risk, after we've invested huge sums of money progressing one option."

Hundreds of millions have already been spent, and before the final investment decision is made -- perhaps in 2018 -- the companies and state will spend much more. "We're investing more than $2 billion to see if it makes sense to invest another $45 to $65 billion," said Butt.

The land purchases are necessary to show the Department of Energy the project is serious, and not a speculative venture like some other LNG efforts, said Lydia Johnson, Alaska LNG technical manager.

LNG is the fastest-growing segment of the natural gas industry, and the project's competition is widespread, including along the U.S. Gulf Coast.

But Alaska LNG enjoys advantages over other projects, including that some 2,000 wells have already been drilled on the North Slope and travel time to Asia would be cut in close to half compared to Gulf Coast projects. Also, the Alaska cold performs part of the work, since the gas temperature must be lowered to 260 degrees below zero to liquefy it – similar to the average temperature on Saturn.

Butt said other efforts are underway: Meetings with dozens of representatives from regulating agencies have begun. The project has hired a leadership team to fill 27 roles, with more than 800 years of combined experience. Offices have opened to tap expertise in places such as Calgary, Denver, Houston and Anchorage. More than 100 people are working directly on the project, and many more contractors.

Some Alaskans believe this project will fail like others before it. Butt said he hears that "cynicism and skepticism," but said the project can be shaped by Alaskans.

Asked if this project will happen, Butt said: "I'd like to reflect that one back to you. You tell me. Is there an adequate will in the people of this state to work with the Legislature and align themselves as an owner?"