The state of Alaska, through the Alaska Gasline Development Corp. (AGDC), and ConocoPhillips Alaska Inc. have executed a memorandum of understanding (MOU) to form a joint venture company (JV) to market liquefied natural gas (LNG) from the Alaska LNG project and acquire North Slope gas, with an ultimate goal to bring global LNG buyers and North Slope wellhead sellers together.
AGDC and ConocoPhillips said Wednesday they intend to pursue the support of other major North Slope producers in forming the JV.
Planning for Alaska to take over the multi-billion-dollar project to commercialize North Slope natural gas reserves began recently (see Daily GPI, Aug. 22). Such a transition would put the project in the hands of the AGDC and remove Alaska's major producers from direct participation.
Alaska Gov. Bill Walker expressed enthusiasm that ConocoPhillips had signed on to the JV.
"ConocoPhillips has played an integral role in developing our state's gas reserves, and has been shipping LNG from Nikiski to Japan markets for over 40 years -- the longest such contract in LNG history,” he said. “This joint venture will provide new opportunities to develop our LNG resources for a global market."
Announcement of the MOU comes less than a month after Alaska's top oil/natural gas producers told state lawmakers that the proposal on the table to pipe, liquefy and export North Slope natural gas was uneconomic and they wouldn't move forward as partners, though they would sell their natural gas to a state-developed project if were to come to fruition (see Daily GPI, Aug. 26). Consultant Wood Mackenzie Ltd., hired by BP plc, ExxonMobil Corp. and AGDC to study the project, also told a state House and Senate Resources Committee the project would not work as configured.
But Walker -- a proponent of greater state control of the project since taking office -- said Wednesday the MOU is evidence that planning for the project is still on the rails, and producers remain part of the team.
In remarks delivered at the CWC World LNG & Gas Series Asia Pacific Summit in Singapore, Walker said he was "pleased about the ongoing relationship we have had, that we now have and continue to have with our soon to be former partners at the end of this year."
Walker said that in addition to the MOU, he has in recent days received an email from BP Alaska and ConocoPhillips Alaska providing assurance of their willingness to transition and work with the state during the process, "and we've received similar assurances and letters from ExxonMobil.
"So this is not a project that's being done in spite of anybody. They want to monetize that gas almost as much as we do...So we're working with them in that process, to make sure that the project gets monetized, alongside them."
AGDC's broader plan to position the Alaska LNG Project for a front-end engineering design decision includes these key elements:
Structuring for federal and state tax efficiencies, including seeking a federal ruling on tax exempt status;
Advancing low-cost financing and investor options;
Engaging engineering, procurement and contracting companies with the ability to shoulder a significant part of the construction risk;
Enrolling major North Slope producers to commit their gas to the planned JV or tolling arrangements with the project; and
Positioning a JV company to engage the LNG market to gauge the extent and timing of demand.
The MOU focuses on leveraging the strengths of the parties to advance the goal of economic commercialization of the vast North Slope natural gas resources. It anticipates activities that include raising market awareness of the Alaska North Slope gas resource and the Alaska LNG project. Active sales and negotiation activities with global buyers could begin once the JV has been successfully formed.
Once established, the JV initially is expected to focus on gathering LNG market information to pursue natural gas and LNG sales agreements. The JV would also seek to establish terms for a sufficient and reliable supply of gas to the project, resolving longstanding project gas supply assurance issues. The MOU anticipates that other producers or third parties could join the JV, make gas available via wellhead sales, or commit to tolling arrangements with the Alaska LNG Project.
Walker in recent months has tangled with producers involved in the LNG project and had asserted that they were dragging their feet on moving the project forward. For their part, the producers have indicated that the global collapse in commodity prices put the economics of the $45 billion project into question. Earlier this year, Walker and the trio of producers said they remained committed to moving the project forward, but were looking for ways to cut costs (see Daily GPI, Feb. 17).