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Alaska LNG snatches up land, buoying a local economy

  • Author: Alex DeMarban
  • Updated: July 7, 2016
  • Published January 31, 2016

The three oil company partners in the $55 billion Alaska LNG project have acquired more than 150 tracts of land on the Kenai Peninsula as they piece together an expanse that could one day house a massive plant and shoreside facility where liquefied natural gas would be processed and exported.

The tracts acquired by ExxonMobil, BP and ConocoPhillips range from 40-acre swaths in the woods near Nikiski to lots with homes, a patchwork of parcels amounting to 571 acres with an assessed valuation of almost $30 million, according to the Kenai Peninsula Borough records.

The purchases have led to increased activity in the small real-estate market in Nikiski, population 4,500, and the nearby area, said Fred Braun, a broker at Jack White Real Estate in the nearby city of Kenai. He said sellers are pocketing large sums -- much higher than the assessed value -- especially if they held out for a higher price. They're using the money to buy replacement homes in the area in transactions that have pushed down the number of houses for sale to unusually low levels.

"I'd say the LNG project has already been a mini-economic boom to a lot of people," Braun said.

An Alaska LNG spokeswoman would not disclose sale prices, saying the purchase agreements are confidential.

Braun said news about what Alaska LNG will pay spread quickly among neighbors and friends after the first purchases were made two years ago.

The project does not have the power to condemn parcels and force their sale under eminent domain, the power that some agencies and utilities can invoke for a public benefit. Paragon Properties, the land agent for the Alaska LNG Project that opened an office in Kenai in 2013, has negotiated with sellers to reach an agreement, said Braun.

Are sellers walking away satisfied?

"Gosh, yes," he said. "If you end up with $550,000 for an acre, or two acres, you better be happy," he said. "I know quite a few that have sold, and I shake my head and ask, 'How did they get to that price?"

The land purchases began in early 2014, in part to meet the project's obligation to the Federal Energy Regulatory Commission, the oversight agency. Alaska LNG needed to show it had "adequate control" of the land where a plant might be built, said Kim Fox, external affairs manager for Alaska LNG.

The land purchases have also enabled the companies to conduct early engineering studies and other work at the site, she said.

"We've moved forward with a full commitment to our land purchase activity since we started it," Fox said.

If the costly project is ever approved, plans call for the construction of a liquefaction facility at the site where the Kenai Spur Highway runs near a bluff overlooking Cook Inlet, about 80 miles southwest of Anchorage. Some 2.5 billion cubic feet of natural gas would be super-chilled into a liquid each day, with the fuel shipped overseas in oceangoing tankers. If used locally instead of the hope of exporting to Asia, the daily output would meet almost two weeks' worth of demand in the Cook Inlet region during an average year.

So far, the land belongs only to the oil companies, though the state is the fourth partner in the project.

Alaska Project LLC, the state-registered corporation that has been acquiring the land, was formed by the three oil companies in late 2013. That was before the creation of the guiding document that brought the state into the effort, Fox said.

If the project continues to move ahead, the state will eventually have to buy into the corporation to own its share of the land, said Miles Baker, external affairs manager for the Alaska Gasline Development Corp., the state's representative in the project.

That may not happen until the partners agree to enter a more advanced engineering and design phase, following a decision scheduled for 2017, he said.

So far, Paragon, the Alaska LNG land agent, has purchased 151 tracts from dozens of individuals and a handful of corporations, according to state and borough property records.

Many are small -- just a fraction of an acre -- with assessed values of less than $5,000.

The most valuable acquisition is a 23-acre property that once belonged to BP Exploration Alaska, a former facility where researchers demonstrated that natural gas can reliably produce diesel and jet fuel. The facility closed in 2009, but the site is valued at $23 million.

That land deal closed late last year, according to Fox.

The large tract of BP land was not a factor in Alaska LNG's decision to select Nikiski as the plant site over more than 20 other options in Southcentral Alaska, said Fox.

Instead, the project chose Nikiski, the home district of Alaska House Speaker Mike Chenault, based on a variety of factors that included the lack of ice buildup where the marine facility might be built, the lack of blasting and grading required on land, and the relatively small level of emissions from existing industrial activity.

Also key was the need for an expanse of flat land of between 800 acres and 1,000 acres.

Although the size of the plant is still being determined, Alaska LNG officials have said the large amount of land is needed in part to create a large buffer between the facility and other properties, providing a safe distance that reduces impacts from noise and emissions.

The potential size of the project means engineers are currently studying options for re-routing the Kenai Spur Highway near the site, Fox said.

One of the largest tracts sold, a 40-acre parcel assessed by the borough at $50,600, belonged in part to Nickel Inc., owned in part by real estate developer Bob Penney and members of his family. The investors also owned a much smaller tract that was also sold to Alaska LNG in 2014.

Bob Penney and other investors purchased the land during the late 1960s, said a son, Henry Penney, who runs Penco Properties, an Anchorage real estate company owned by Bob Penney.

"I was about 10 years old, and it was an investment my father made with others," Henry Penney said.

Penney said he didn't know why his father picked that land.

The area has long played an important role in oil and gas activity in Cook Inlet. North of the proposed site for the huge plant sits what was once the world's largest LNG export facility, the Kenai LNG plant now owned by ConocoPhillips that first began shipping LNG to Asia in 1969.

Did the investment pay off for Bob Penney?

"I can't say," his son said.

He would not disclose the sale price, citing the confidentiality requirements included in the purchase agreement.

Larry Persily, a special assistant on oil and gas issues to Kenai Peninsula Borough Mayor Mike Navarre, said the land purchases show the oil companies are serious.

"It affirms their commitment that if everything falls into place they want to be ready to do the project," he said.

The tax-assessed value of the land -- $29.76 million -- would result in a property tax of $300,300 based on the 2015 mill rate. The revenue would be shared by the borough and other entities in the region with taxing authority to support roads, fire and other local services.

A flood of LNG export facilities under development around the world and low LNG prices have increased the uncertainty surrounding a project that will cost each partner more than $10 billion to construct.

Asked what Alaska LNG will do with the land if the project falls apart, Fox said there was no "roadmap" for that possibility.

Braun, the broker, said he tells people the land acquisitions are no guarantee the project will get the go-ahead.

If he owned land in the area, he said he'd likely sell it quickly if the price was right, given the headwinds facing such a massive effort.

"I'd probably say hurry up and pay me," he said.

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