Despite the growing interest by foreign markets and potentialinvestors in the proposed LNG portion of the Trans-Alaska GasSystem (TAGS), the May 22 deadline set by FERC for start-up of theconstruction of the export project will not be met, says thesponsor of the proposed facility. Yukon Pacific Co. L.P. has askedthe Commission to extend the deadline, which was set back in 1995,until May 2001, saying that a refusal by FERC would be a “serioussetback” and might cause it to abandon the LNG project altogether.
“If the [site] approval lapses, there will be a great risk thatAsian marketers will turn to other foreign sources. Yukon Pacificis competing with many other LNG suppliers around the world, and itmust show that it can be flexible in order to remain competitive,”Yukon Pacific told the Commission [CP88-105]. It also would strandthe $100 million that has been invested in the project by CSXCorp., a giant in the railway and barge industries.
The proposed plant, to be sited at Valdez, AK, would liquefyNorth Slope natural gas for shipment by tanker to the Asian nationsof Japan, Taiwan and Korea, burgeoning markets for liquefiednatural gas. The gas would be transported to Valdez over theproposed 796.5-mile TAGS delivery system. The LNG project wouldhave a license to export about 14 million metric tons per year, butwill have the capability to increase capacity as needed. Thecountries of Taiwan and Korea already have signed letters of intentfor much of the LNG, says Yukon Pacific President Jeff Lowenfels.
The project’s “primary focus” now is “securing North Slope gassales and LNG purchase commitments and project financing,” thecompany noted. Toward this aim, “Yukon Pacific is continuing itsnegotiations with all current and potential stakeholders, includingAsian buyers, North Slope producers, relevant state and federalagencies and representatives, and potential investors in theproject.” The interest from potential investors, Lowenfels added,is “ever increasing.”
Although its role is limited to sponsor now, Lowenfels saidYukon Pacific hopes to join a consortia of investors, mostly oilcompanies, to bankroll the TAGS system, which he estimates willcost $10 billion-$15 billion, including tankers.
He doesn’t think the instability that has been witnessed in theAsian financial markets in the past months has dampened foreigninterest in the LNG project. “I think overall it’s had a positiveimpact on the [Alaska] project. Given that 70% of the LNG in Japancomes from the South China Seas [region]…the idea of being ableto have a stable source is very, very attractive” to the Asiannations, he noted.
“The economics of the project look very good” to thesecountries, Lowenfels told NGI. “Clearly the political problems aswell as the financial problems” in places, such as Indonesia, arestrong selling points for buying LNG from the United States.
He noted that several wheels are in motion in Alaska to helpmake the LNG facility a reality. In February, Alaska Gov. TonyKnowles proposed legislation calling for tax incentives and othermeasures to improve the commercial viability of North Slope gasexports. In addition, Yukon Pacific and several North Slopeproducers (Atlantic Richfield, Exxon and British Petroleum) haveentered into memoranda of understanding with the state to furtherexplore steps to advance North Slope gas exports.
Yukon Pacific is projecting that LNG deliveries will begin inthe 2005-2010 time period, which would be “synchronous with the[LNG] demands of the targeted foreign markets.” Allowing for eightyears to complete the project, construction should begin “noearlier than 1999, but probably no later than 2001.” Yukon Pacificleft open the possibility that it may have to come back to theCommission in 2001 to ask for another extension for the start-up ofconstruction.
Refusing to grant Yukon Pacific an extension this time would notbe in the best interests of the United States, Lowenfels said. Whenthe project’s up and running, the LNG exports will add $4 billionto the “positive side” of the nation’s balance of payments eachyear, he estimated. “We could sell all the Chryslers, all the rice,all the cigarettes and all the apples we want and not reach thatamount.”
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