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State, working with partners, will soon take over Alaska LNG

  • Author: Alex DeMarban
  • Updated: August 18, 2016
  • Published August 18, 2016

The state gas line corporation on Thursday laid out a timeline for taking over the massive Alaska LNG project by year's end.

The board also approved the opening of a state office in Houston, Texas, that will be much smaller than the combined project's current 120-person office there, where officials said activities are slowing.

ExxonMobil, BP and ConocoPhillips in recent months have signaled they may not all continue with the $55 billion project amid the global slump in the price of oil and liquefied natural gas.

Now, the state and the oil companies are working "cooperatively" on a plan to turn over leadership of the project to Alaska, said Keith Meyer, president of the Alaska Gasline Development Corp. The state corporation represents the state's interest in the project.

The proposed changes are causing concern among lawmakers who have doubts about the state's ability to oversee an effort that includes construction of an 800-mile pipeline to transport massive amounts of North Slope natural gas and a liquefaction plant in Nikiski to superchill the gas into liquid for tanker shipments overseas. Plans call for exporting 20 million tons of LNG a year.

The four partners — Alaska and the three oil companies — have spent more than $500 million on the project so far, most of that in the last two years, though the gas line may never be built. The state has already spent $75 million and is expected to cover 25 percent of the costs.

State Sen. Cathy Giessel, R-Anchorage, attended the board meeting Thursday and said she had concerns about the state taking over the project. She also has questions about how much funding the Legislature will need to advance a state-led project.

"If it's not going to provide enough return to the companies at this time to move forward as rapidly as they intended, is it a value to the citizens of Alaska?" she asked.

Meyer, a former executive of a Houston-based LNG company, took over as president of the state corporation in June.

He has proposed a new approach to financing the project. Instead of the partners providing the funding, as many had previously expected, Meyer has recommended lining up commercial commitments with gas buyers that would attract outside investors.

Those large infrastructure investors, such as pension funds or even the large utilities that also want gas, might be happy with lower returns than the major oil producers have sought, he has said.

Giessel has questioned that approach and said the Legislature is asking its consulting company on oil and gas issues, Enalytica, to review the financing concept.

She's also skeptical about how the state can secure tax-exempt benefits from the federal government — an idea Meyer has promoted as a possible way to lower costs — if private industry plays such a large role in the project.

"There's this idea the state of Alaska could do this in a tax-exempt way," she said, but questioned how that would work with buyer investments and the gas line not being strictly a state project.

Giessel, chair of the Senate Resources Committee, said she'll address some of those questions in a joint meeting with the House Resources Committee planned for Wednesday and Thursday.

On Thursday, Meyer said the state and oil companies plan to sign a transition agreement in October, positioning the state to take over the project by the end of December, he said.

With the state running the project, one change would be the Alaska LNG Houston office, where the Alaska LNG project management team is located.

"Our footprint will be much smaller in Houston," said Meyer.

He suggested in the meeting that a handful of people will be left to work in the satellite office in Houston. But there is no hiring plan in place yet, AGDC staff said.

Meyer said he envisions an "austere" place with an Alaska decor near the airport, where investors in North America's energy capital can link to the corporation's offices in Anchorage for teleconferenced meetings.

One task for the state-led project early next year will be focusing on answering questions from staff at the Federal Energy Regulatory Commission, Meyer said. FERC is expected to prepare an environmental impact statement to support permitting decisions by agencies.

The state does not expect to move into the next phase of the project, known as FEED for front-end engineering and design, until 2018.

That effort, involving detailed engineering studies, was expected to cost the partners $2 billion. It is projected to begin in 2017 if the partners agree to move ahead.

The Alaska LNG office in Houston has overseen the production of more than 33,000 pages of paperwork for draft resource reports to FERC.

Josie Wilson, communications manager for AGDC, said the partners are conducting an audit of the project's costs, and the high-quality studies of the project are part of the office's value.

Meyer said at the meeting he's participated in FERC filings during a career that has spanned decades, but he's never seen a FERC filing so  "voluminous and complete."

While major plans for the project have not changed — such as the gas line and liquefaction plant — it's not known whether the oil companies will still be part of the project once the state takes over.

Meyer said at the meeting the state has begun to have conversations with large engineering firms that can manage and build the project.

Demand for LNG fuel is growing globally, he said. But numerous entities are pursuing projects to sell LNG to meet a "demand window" opening in the mid-2020s when some existing contracts are expected to end.

He said it's only to get more competitive for a state project.

"We expect that window to be 100 million tons (of LNG) a year. The bad news is you've got about 800 million tons of projects that want to come online to meet that," he said.

"Is it a good time to bring a project to market right now? It's the best time that we've got."

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