Conference promotes Valdez as site for LNG export terminal
The liquefied natural gas conference in Valdez, Alaska, was all about touting the benefits and attractions of building an LNG export terminal at the port city for shipping Alaska North Slope gas to Asia. But several speakers acknowledged the problems in getting anything built anywhere in Alaska to move natural gas to market.
"There is a great division among communities," Alaska U.S. Rep. Don Young told the audience via video link from his congressional office in Washington, D.C. Alaska municipalities need to get together on a single LNG project, rather than battle for the role of host city, Young said.
Alaskans need to figure out how to get it done without dividing the state, he told the 120-plus attendees at the Sept. 13-14 Alaska LNG Summit 2012 sponsored by the Alaska Gasline Port Authority. The authority, comprised of the city of Valdez and the Fairbanks North Star Borough, has been pushing since 1999 for a large-volume North Slope gas pipeline leading to an LNG export terminal in Valdez and against other proposed Alaska gas projects.
One option currently under consideration — building a smaller pipeline from the North Slope to Southcentral Alaska to feed an LNG plant on the Kenai Peninsula — is worse than doing nothing, said Craig Richards, an Anchorage attorney who shares a practice with Alaska Gasline Port Authority general counsel Bill Walker.
This so-called bullet line, promoted by many Alaska legislators including House Speaker Mike Chenault, a Kenai Peninsula Republican, would prevent a bigger pipeline from getting built for a decade, Richards said.
In addition to pushing for a bigger line to Valdez over the Kenai Peninsula, Richards is no fan of the major North Slope producers owning the pipeline and LNG terminal. The companies are looking at the economic feasibility of a. (They have not announced any list of potential LNG terminal sites.)
Led by pipeline company TransCanada Corp., the effort earlier this month solicited non-binding expressions of interest from potential shippers. Though TransCanada did not announce the results of that solicitation,"major players" submitted responses. North Slope producers ExxonMobil, BP and ConocoPhillips are working with TransCanada to consider the feasibility of an Alaska LNG project for sending gas to Asia.
"Take control away from the producers" is the best option, Richards said, calling for the state to take the lead on a Valdez project. His partner, Walker, delivered the same message, arguing for the state to build and own the pipeline and liquefaction terminal. The Walker and Richards firm also serves as city attorney for Valdez.
Construction of a North Slope gas treatment plant, an 800-mile pipeline to Valdez and liquefaction and shipping terminal has been estimated at roughly $40 billion. All of the Valdez conference speakers agreed that long-term gas sales contracts would be needed to finance the project, much like those Cheniere Energy obtained to underpin financing of its LNG export terminal planned for Sabine Pass, La., and scheduled to open in 2015.
Putting together an LNG export project is not easy, said Bob Gibb of Navigant Consulting's energy practice, based in Austin, Texas. In addition to massive capital costs, a project needs 20-year sales contracts with gas buyers and the developer has to deal with the significant risks of unpredictable market demand and intense competition from other LNG suppliers.
The only state government official on the two-day agenda in Valdez reminded the audience that the producers are expected to provide an update on their LNG review by the end of September. More project information will follow next year as the companies work through the design, routing, environmental and commercial issues for the mega-project. Meanwhile, "Let's take the game to the rest of the world and see if an opportunity at tidewater exists," said Kurt Gibson, director of the Alaska Gas Pipeline Project Office.
"We're competing in a global market," Alaska U.S. Sen. Lisa Murkowski said in an audio hook-up from Washington.
True, but time is tight, said Radoslav Shipkoff, director of Greengate LLC, a Washington, D.C.-based adviser that specializes in project debt financing. "This window of opportunity is not going to last forever," he said.
"The biggest impediment for Valdez to go forward is political," said Octavio Simoes, president of Sempra LNG in San Diego, a longtime supporter of the Valdez project.
The state could continue with its current path under the Alaska Gasline Inducement Act, he said. That has TransCanada leading the state-subsidized effort. Or, as a "different structure," Simoes said, the project could take place outside of the 2008 AGIA deal and, in its place, the state could "create a consortium of creditworthy Pacific Basin gas buyers to permit, finance, build and operate the facilities." He advocated that whatever the state chooses, it would be best to find a way to bring all interested parties together.
Sempra in 2004 signed a non-binding development agreement with the port authority and contributed several million dollars to jointly consider and promote the Valdez LNG project. The company ended its relationship in 2005, blaming "protracted political wrestling within the state" among the reasons for its departure.