Page 15 - NorthAmOil Week 21

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Alaska LNG obtains federal authorisation
ALASKA
THE proposed Alaska LNG project has obtained federal authorisation to proceed, though the approval comes at a particularly challenging time for the LNG market, which threatens to derail new projects. The US Federal Energy Reg- ulatory Commission’s (FERC) authorisation was the largest remaining hurdle for the project, and concluded an environmental impact review that had taken over three years to carry out.
The project’s backer, Alaska Gasline Develop- ment Corp. (AGDC), an independent entity set up by the State of Alaska, still has several other authorisations to secure on both the state and federal levels. However, securing the financing required to build the project stands to be a far more significant hurdle in an oversupplied mar- ket. And last month, AGDC’s board approved a plan calling for the state to find a new project sponsor by 2021 or put the Alaska LNG project assets out to bid.
The FERC authorisation could go a signifi- cant way towards de-risking the project in the eyes of potential investors, but Alaska LNG’s considerable price tag could still prove to be a deterrent. In 2016, the project was estimated to cost around $43.4bn. Since then, Fluor has been contracted to work on cost reduction planning for the project, in co-operation with BP and Exx- onMobil, which have signed agreements to help advance the scheme. A revised cost estimate has been produced and is now being used in eco- nomic modelling, but the details have not yet been publicly disclosed.
According to the AGDC’s president, Frank Richards, a clearer picture of Alaska LNG’s eco- nomic viability will emerge in June. This comes as depressed LNG spot prices have made it increasingly more difficult for new projects to be competitive.
Alaska LNG was previously estimated to require LNG prices of at least $12 per million
British thermal units ($331.92 per 1,000 cubic metres) in Asia in order to be viable. And in the past, AGDC said it might be able to bring the breakeven cost down to $9 per mmBtu ($248.94 per 1,000 cubic metres). However, given that Asian LNG spot prices have fallen to around $2 per mmBtu ($55.32 per 1,000 cubic metres), this would not go nearly far enough, at least under current market conditions, though prices are expected to rise over the longer term.
Nonetheless, the glut of LNG means buyers have more choice than ever before, making it more difficult for LNG producers to strike long- term supply agreements. Under such circum- stances, it is possible that Alaska LNG may need to find an alternative way of securing sufficient commercial support in order to proceed.
If Alaska LNG were to go ahead, it would help producers on Alaska’s North Slope – includ- ing BP and ExxonMobil – to market extensive gas volumes that are currently stranded in the region. The state is thus hopeful of finding a way forward, and officials welcomed the FERC approval.
“Today’s federal authorisation is a key step in determining if Alaska LNG is competitive and economically beneficial for Alaska,” Alaska Governor Mike Dunleavy said in a May 21 statement. “The ongoing project economic review and discussions with potential partners will determine the next steps for this project,” he added.
The Alaska LNG project would have the capacity to produce 20mn tonnes per year (tpy) of LNG, and aims to benefit from a compar- atively short sailing time to Asia. The project includes an 807-mile (1,299-km) pipeline that would carry up to 3.9bn cubic feet (110.4mn cubic metres) per day of gas from the North Slope to the liquefaction facility in Nikiski, on the Kenai Peninsula.™
Building Alaska LNG would allow gas stranded on the North Slope to reach overseas markets.
Fluor has been contracted to work on cost reduction planning for the project, in co- operation with BP and ExxonMobil.
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