Former Alaska Lt. Gov. Mead Treadwell is spearheading a new effort to sell North Slope natural gas with an offshore Arctic LNG plant and icebreaking tankers.
Treadwell is CEO and chairman of the firm Qilak LNG. Leaders of the Anchorage-based startup announced Wednesday morning that they have a conceptual “heads of agreement” with ExxonMobil to purchase gas from the major producer’s Point Thomson field on the eastern North Slope for 20 years.
The estimated $5 billion Qilak project would require building a gas treatment plant at Point Thomson to remove carbon dioxide and other impurities from the gas before it would be piped to a mobile LNG plant located 6 to 10 miles offshore. The plant would be served year-round by icebreaking LNG tankers that would take their cargoes to power plants in Asia.
Treadwell said he has already been in discussions with buyers representing about 10 million tons of demand per year.
The concept is a scaled-down version of Russia’s $21 billion Arctic LNG 2 project, according to Qilak representatives.
The LNG plant would literally sit offshore in waters 13 to 16 meters deep, meaning the project would not require costly ocean dredging. Qilak President and Chief Operating Officer David Clarke said the mobile LNG plant would store liquefied gas in underwater tanks beneath the deck of the plant and the whole facility would be sunk on the ocean floor.
The project could eventually incorporate gas from Prudhoe Bay if the owners there, led by incoming operator Hilcorp Energy — which also acquired BP’s roughly one-third share in Point Thomson — elect to sell gas, Clarke added.
Qilak expects to start a detailed feasibility study of its LNG project plan early next year. They are currently shooting for a final investment decision in 2021 or 2022 that could lead to a 2025 startup.
The Point Thomson gas field, operated by ExxonMobil, holds approximately 8 trillion cubic feet of natural gas.
“ExxonMobil sees the development of the Qilak LNG-1 project as an opportunity to develop Alaska’s gas resources,” ExxonMobil Alaska President Darlene Gates said in a statement released by Qilak. “As the largest holder of discovered gas resources on the North Slope, ExxonMobil has been working for decades to tackle the challenges of bringing Alaska’s gas to market.”
Qilak is an Inupiat word for the environment and was suggested by a North Slope whaler, according to information provided by the company.
The project concept has been in the works for about three years, according to Treadwell, who said the work is being funded by Lloyds Energy of Dubai.
He emphasized that shipping from the North Slope is only about 40 miles farther to Asian markets than from Cook Inlet, which would be the endpoint for the Alaska LNG Project.
Shipping LNG directly off the Slope has been considered several times before but sea ice and other factors challenged the economics the concept.
“Markets have changed, technology has changed and ice conditions have changed,” Treadwell said.
He also stressed that project officials would work with shippers and North Slope communities to schedule shipments and set ship routes around marine mammal subsistence harvests. He added that the tankers — powered by LNG with LNG cargoes — also limit environmental risks.
“We are not moving oil through the Arctic Ocean,” Treadwell said.
With a startup production rate of about 4 million tons of LNG per year, the project would be about one-fourth the size of the roughly $40 billion Alaska LNG Project that the Alaska Gasline Development Corp. is permitting through the Federal Energy Regulatory Commission.
Under Gov. Michael J. Dunleavy’s administration AGDC has downsized and stopped seeking gas customers; instead, the state-owned agency hopes to turn the project over to private investors if it is deemed economic after ongoing analysis.
What the Qilak project wouldn’t have, though, is an 800-plus-mile gas pipeline bisecting the state. The estimated $10 billion gas pipeline portion of the Alaska LNG Project has long been viewed as the major economic hurdle to selling the state’s massive North Slope gas resources in the Point Thomson and Prudhoe Bay fields.
But the line would also be the source of cleaner, lower-cost energy for communities along the route — notably the Fairbanks area — that largely rely on fuel oil for power generation and home heating.
Alaska LNG advocates have also touted that project as a way to get lower-cost energy to the numerous Interior mine prospects that often have challenging economics largely due to the high cost of feedstock diesel used to power remote operations.
The Qilak project was announced at a press conference at the downtown Anchorage offices of the national law firm Holland and Hart, which now employs former Gov. Sean Parnell, whom Treadwell served with as lieutenant governor from 2010 to 2014. It was Parnell’s administration that put together the initial Alaska LNG venture with BP, ConocoPhillips and ExxonMobil as equity partners along with the state.
Treadwell said the project could possibly deliver LNG to Western Alaska communities as the tankers pass through the Bering Sea, but that would require lightering to smaller tankers or barges. The tankers would be too large to serve small ports and harbors and because there are no U.S.-made icebreaking LNG tankers, the Jones Act would prohibit from calling on Alaska ports unless a federal waiver was granted, acknowledged Clarke, a former executive with BP.
Treadwell added that some amounts of LNG could potentially be trucked off the North Slope to reach road-accessible communities as well.
“I promised the governor this morning that we would do anything we could to get gas to Alaskans,” he said.
Dunleavy’s spokesman Jeff Turner wrote in an emailed statement that “Gov. Dunleavy encourages and supports all business concepts that can successfully monetize the trillions of cubic feet of natural gas at Point Thomson and other areas on the North Slope.”
Interim AGDC President Joe Dubler said in an interview that although Qilak’s plans would likely take part of the gas once intended for the Alaska LNG Project his agency is working on, he thinks any way to finally sell North Slope gas — a long-held dream of several generations of Alaskans — would be good for the state.
“I’m an Alaskan and any project that can monetize North Slope gas is a good deal for me; that’s where I’m at. If (Alaska LNG) isn’t it, whatever one comes down that is it will have my support,” Dubler said.
“We can cross the energy bridge for the whole state when we get there. Without a project that produces natural gas in marketable quantities that you can sell it doesn’t do any good to talk about anything else.”
Qilak’s high-level agreement with ExxonMobil does not interfere with a binding gas sales precedent agreement AGDC signed with the producer in September 2018 for its share of Point Thomson and Prudhoe Bay gas because the preliminary AGDC-ExxonMobil deal was allowed to expire earlier this year, according to Dubler.
He said the state corporation did not renew the agreement signed under the Walker administration because it was done prematurely and before other key elements of Alaska LNG had been settled.
The Qilak project wouldn’t necessarily preclude Alaska LNG from utilizing gas from Prudhoe or other discoveries, Treadwell noted as well.
Elwood Brehmer can be reached at firstname.lastname@example.org.