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Energy

Think tank: State needs to support Alaska LNG, drop stand-alone pipeline

  • Author: Alex DeMarban
  • Updated: September 28, 2016
  • Published August 12, 2015

A pro-business think tank supported partly by ExxonMobil and ConocoPhillips has laid out a case for why Alaska leaders should fully get behind the Alaska LNG project and stop supporting a smaller, stand-alone gasline effort.

The American Council for Capital Formation, based in Washington, D.C., issued a white paper Wednesday saying Alaska could be jeopardizing Alaska LNG by creating an in-state competitor.

The think tank argues that with plenty of global rivals for liquefied natural gas projects, and Alaska's oil-dependent economy facing massive deficits, it's critical that the state focus exclusively on the $55 billion Alaska LNG project, a joint endeavor of ExxonMobil, ConocoPhillips and BP, along with the state and pipeline builder TransCanada.

The state's indecision is bad for the project, said Margo Thorning, the report's author and the think tank's chief economist.

"Uncertainty tends to make it more expensive for a company to finance a project and uncertainty is raised when questions about how the project will be structured are raised," said Thorning, in a call with reporters.

Thorning said the group has been studying North American LNG export projects and related U.S. policy in recent years. She voiced support for the Alaska LNG effort, the largest LNG project on the continent, saying the partner companies have the expertise in the field to bring Alaska's North Slope gas reserves to market in 8-10 years.

She said it's important to be among the first projects to lock in contracts with potential gas buyers.

"Given this is a huge project and the investment is what we consider irreversible, it's doubly important that uncertainty around the project be minimized," said Thorning, who is also senior vice president with the group.

ExxonMobil, the current Alaska LNG lead partner, and ConocoPhillips, are listed as two of the group's 34 sponsors in its 2014 annual report.

Asked if the oil companies requested the white paper, Thorning said the organization decides what to review based on input from an energy advisory board consisting of about 25 energy producers and consumers.

Kim Jordan, ExxonMobil's public and government affairs coordinator in Alaska, said ExxonMobil did not request the study and is not represented on the board of directors and an advisory board that guides ACCF's work.

She said ExxonMobil is focused on advancing the Alaska LNG project.

Natalie Lowman, spokesperson for ConocoPhillips, also said the company did not request the study.

The current plan for Alaska LNG gives ExxonMobil, ConocoPhillips and BP the largest stake in the Alaska LNG project, a factor that has compelled Gov. Bill Walker to consider a larger state investment in the project.

Walker also has called for the smaller gasline project, known as the Alaska Stand-Alone Pipeline, to be "upsized" so it can carry more gas and provide a backup plan in case the Alaska LNG effort fizzles.

The effort has put the governor at odds with top Republican lawmakers who support Alaska LNG. The white paper's argument relies in part on comments from Enalytica, oil-and-gas consultants for the Republican-led Legislature, who have argued that the state's pursuit of two projects could ultimately endanger both efforts.

In a statement issued Wednesday, the governor did not comment on the comparisons of the two projects. But he said the paper calls for rapid development of the state's North Slope gas.

"This article underscores the urgency of getting Alaska's gas to market, which I have worked for a long time to expedite," Walker said. "In fact, my first meeting as governor was with representatives of the Japanese market. My gas team meets every day, and that pace will continue until we have a gas line."

The white paper argues that the dual efforts create uncertainty that could raise financing costs and weaken a project's negotiating position as it tries to secure long-term contracts in Asia.

"The administration has announced plans to create a team to review the Alaska LNG Project for 45 days," the paper said, noting the announcement was made in April. "As of this report, the administration has not yet released any information about the review's conclusions. This has increased the odds that the state legislature would have to convene a special session in the fall to address the tug of war between the governor and many state lawmakers over critical needs for the project as laid out by the (framework agreement) and in legislation passed by the Alaska legislature in 2014."

Katie Marquette, a spokeswoman for the governor, said the 45-day review was delayed because the Legislature did not pass a budget until June 11, providing clarity on the amount of funding available.

The paper, titled "The Global Race for Liquefied Natural Gas: Commercializing Alaska's Natural Gas," says:

• Alaska LNG is led by experienced companies with a "proven global record of expertise and the capability to deliver a complex, multi-billion dollar infrastructure project on schedule, even in remote and challenging environments." Meanwhile, "the state has no track record of developing such a project."

• The scope, cost and partnership arrangements of an upsized ASAP are not known, making revenue projections impossible. Also, the state may not have the money to go it alone, requiring the state to attract a private partner. "The state's budget situation raises questions about its capacity to pay its 25-percent share in the Alaska LNG Project. It is hard to create a scenario in which it could assume 100 percent of the risk of the ASAP project, which can be expected to rise significantly with its proposed expansion." (The governor has said the state would pursue project partners if Alaska LNG disbanded and the upsized ASAP went forward.)

• Alaska LNG is more prepared to move ahead, with ASAP lagging "far behind" on the early engineering studies.

• Alaska LNG has a gas resource available, through leases held by the oil company partners, while ASAP does not.

Kim Fox, a spokeswoman with Alaska LNG, said the partners in the project are focused on completing this summer's field work in preparation for submitting a final round of draft resource reports to federal regulators in February, she said.

"The study isn't ours and it's just not appropriate to comment (about it)," she said.

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