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Energy

Governor finds strong interest from Asian LNG buyers on Japan trip

  • Author: Alex DeMarban
  • Updated: September 28, 2016
  • Published September 22, 2015

After what he called an unusually warm reception in Japan, the head of Alaska's gas marketing team said a likely next step will be securing early agreements with Asian utilities interested in buying the state's North Slope natural gas.

During Gov. Bill Walker's recent weeklong visit to the country, all but two of a long list of potential gas buyers said they were interested in taking discussions to the next level, sending positive signals that could help bolster one of the world's costliest projects, said Audie Setters, a former Chevron executive with years of experience helping to create global LNG projects, such as the Gorgon project in Australia.

"It was the most positive reaction by buyers to a new project I've ever seen in my career," said Setters, who was hired by former Gov. Sean Parnell but retained by Walker.

Walker and members of his administration, including Setters, said they held a flurry of meetings with more than two dozen companies in four cities -- potential buyers and investors that might one day be part of the $55 billion Alaska LNG project. The effort would liquefy the North Slope's natural gas and ship it to Asia. Walker also spoke at two LNG conferences on the trip, which included first lady Donna Walker.

Some companies expressed interest in investing in the project, but they were told it was probably too soon to have that discussion, Walker said. ExxonMobil, BP, ConocoPhillips and the state are the primary partners in the project, but the governor has said he wants to build bridges with other parties in case any of the current participants back out.

Walker said the purpose of the trip was announcing that "Alaska has a project, and that this administration is fully engaged in making it happen.

"The reception was like nothing I'd ever seen before," said Walker, who has visited the region before to pitch North Slope gas as part of a municipal-backed project he pursued before becoming governor.

Last week's trip came amid disagreements among the parties over key elements; the state is considering taking a larger role in the project by buying out minority partner TransCanada, a pipeline builder.

Those and other issues may be addressed in a special session that the governor has announced he'll hold before the year ends, possibly as early as late October.

Rep. Mike Hawker, R-Anchorage, a critic of the governor's efforts on Alaska LNG, said the state currently has no gas to sell in part because of the impasse.

"Until it's produced by the producers and given to the state in the form of royalty-in-kind gas, we have no gas to sell," Hawker said.

Setters said the issues are not unusual for a project of this size. They need to be resolved before the parties can enter into a final engineering phase early next year that will cost each partner hundreds of millions of dollars, he said.

Setters said he envisions fashioning strong but not binding agreements with potential buyers in Asia that could serve as a first step. The agreements would provide assurances that the project has a willing market. Once the final engineering phase is entered, those agreements could be made binding.

The state team went to Japan with low expectations, knowing that demand in China is slowing and Japan is currently oversupplied with LNG, which some fear will threaten the project, Setters said.

"It turned out to be much better than I imagined," said Setters. "I think the governor speaks so passionately about the project and is so committed that that really resonated with a lot of buyers."

Despite the current glut, Setters said the Japanese companies have a long-term interest in natural gas that merges with Alaska LNG's schedule, which doesn't plan to produce its first gas until 2024 or later.

One advantage that potential buyers liked is that Alaska could provide more flexibility than they've had with past LNG contracts. If demand is lower than expected, the utilities would still pay the state the full value of the gas, but have the opportunity to resell excess supply, Setters said.

Many of the companies said they are interested in Alaska's gas in part because it's a proven resource that can be shipped to Asia in seven days, much faster than from other ports, Walker said. They noted that Japan has a need for LNG because it has reduced its reliance on nuclear energy since the 2011 Fukushima disaster.

Entities the team met included KoGas, the world's largest LNG buyer, Mitsubishi Corp.'s natural gas division, Tokyo Electric Power Co., Tokyo Gas, Japan Bank for International Cooperation and Osaka Gas.

Tokyo Gas put on an impressive reception for the delegation to show appreciation for its long-running contract with the ConocoPhillips LNG plant in Nikiski, a relationship that lasted consecutively for more than four decades. The event included a video with footage of the first shipment in 1969.

In his speech at a conference in Tokyo on Wednesday, Walker said he was disappointed to hear that Alaska was not often associated with natural gas in the minds of many Japanese companies. Instead, they think of glaciers or oil or salmon.

"I said, 'I'm here to change that dynamic,'" he said. "They heard it loud and clear."

Walker said Monday he did know the final cost of the trip, but said that information would be provided.

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