September 28, 2012
Friday

Since the award of the AGIA contract, Alaska has funded Exxon/TransCanada in the amount of $188 million, yet Alaska  has not been told the results of the first July 2010 open season.  However, Asia’s strong demand for Valdez LNG was confirmed on September 14th when the Alaska Gasline Port Authority submitted nominations, on behalf of Asian buyers, in response to ExxonMobil/TransCanada's AGIA second solicitation of interest.  As discussed below, the Port Authority has made those nominations public in the hope of encouraging open discourse about what steps must be taken immediately to monetize North Slope gas. 

In preparation to solicit interest from the Asian market, the Port Authority engaged the services of the world renowned oil and gas consulting firm Wood Mackenzie to analyze the economics of a large volume Valdez LNG project.  Its tasks included determining the cost of North Slope gas delivered to Japan and comparing that to other LNG projects around the world.  The conclusion?  Under the existing tax structure Alaska LNG can be delivered into Asia significantly cheaper than LNG projects being advanced by the North Slope leaseholders and others in Australia, B.C. or the U.S. Gulf Coast.

Over the past year and a half, I have made numerous trips to Asia to present Alaska’s case for their buying our LNG.  These meetings were preceded with months of exchange of project information.  As a result of those efforts, the Port Authority has been working with several major buyers from Korea, Thailand and Indonesia, which include POSCO, Korea East West Power, KOGAS, GS Energy, PTT International and PT PGN LNG.  Collectively, in the Port Authority's submission to ExxonMobil/TransCanada, these companies stated an interest in purchasing 2.8 billion cubic feet of natural gas at the wellhead.  This exceeds the target volume in the Port Authority's economic model and the volume used by Wood Mac in its independent analysis.  In short, Asia is hungry for our gas in volumes sufficient to build a pipeline.

Yet rather than aligning with the market and moving a project forward, we continue to sit back and wait for the North Slope leaseholders to do studies, all of which inevitably conclude BP, ConocoPhillips and Exxon want oil tax concessions before they will allow a gasline project to move forward.  For instance, the last decade was spent studying a gasline into Canada even though the route to Valdez had already been selected and permitted by a company founded by former Governors Bill Egan and Wally Hickel (and overwhelmingly supported by voter initiative in 2002). With the collapsed prices in the North American market due to shale gas, the focus has again shifted back to Asia.  But continuing the delay game, the producers are now studying, for at least the third time, whether Valdez or Cook Inlet is the proper port for export, notwithstanding the prior studies and permitting processes that selected the deep water, ice free port at Valdez, and only Valdez can safely handle the new, large Q-Max class tankers.               

Verifying creditworthy Asian buyers seeking to purchase Alaska LNG in sufficient volumes to allow financing of a Valdez project is a major milestone that we should all be excited about.  The next step will be for Alaska to finish alignment with the market by taking each Asian company to the subsequent level of contracts, including the execution of gas purchase agreements with the North Slope leaseholders.  It will be telling whether, over the next few months, those leaseholders and Governor Parnell will align with the market and move forward with a project, or whether they will continue to beat the tired refrain that the State must provide steep fiscal concessions to BP, ExxonMobil and ConocoPhillips before Alaskans are allowed to heat their homes with affordable energy and secure their financial futures.

Bill Walker
Anchorage, AK

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