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DOE Approves Alaska LNG Non-FTA Exports

The U.S. Department of Energy (DOE) Thursday issued a conditional authorization for Alaska LNG Project LLC to export domestically produced liquefied natural gas (LNG) to countries that do not have a free trade agreement (FTA) with the United States.

Subject to environmental review and final regulatory approval, Alaska LNG, in the Nikiski Area of the Kenai Peninsula, is authorized to export LNG up to the equivalent of 2.55 Bcf/d of natural gas for a period of 30 years, the DOE order said.

The Alaska project was considered as an outlier from Lower 48 LNG export projects as Alaska's North Slope natural gas would likely remain stranded without an export outlet. The project is a partnership of the state of Alaska, the Alaska Gasline Development Corp., BP plc, ConocoPhillips, ExxonMobil Corp., and the pipeline company TransCanada Corp. (see Daily GPI, Feb. 11).

Federal law generally requires approval of natural gas exports to countries that have an FTA with the United States. For countries that do not have an FTA with the United States, the Natural Gas Act directs DOE to grant export authorizations unless it finds that the proposed exports would not be consistent with the public interest.

"Receiving the conditional license to export LNG to non-free trade agreement countries is a major milestone for the Alaska LNG project and great news for Alaska," said U.S. Sen. Lisa Murkowski (R-AK). "With federal permission in place, those working on the project have the ability to begin selling Alaska gas in the Asian markets. With this project comes good jobs and a stronger economy and I’m excited to see Alaska at the forefront of LNG exports."

DOE considered the Alaska application separately from other currently pending LNG export applications in the Lower 48 states due to the relative geographic isolation of the natural gas resources on Alaska's North Slope. North Slope gas has been a stranded resource unavailable to commercial markets. The project proposed by Alaska LNG includes a pipeline intended to make North Slope gas accessible to consumers.

According to the order, Alaska LNG told DOE that granting the export authorization would "...unlock the vast natural gas resources on the North Slope. Absent granting of the requested export authorization, needed to facilitate the construction of the project, the ability to meet Alaska in-state demand will continue to be very challenging."

Murkowski said DOE's 30-year authorization -- a full decade longer than what is typical for such projects -- was justified by the size and scope of the Alaska LNG Project, which could cost as much as $60 billion. "The volume of 2.55 Bcf/d and the length of this authorization are necessary to support a project of this size and scope," she said.

Alaska has 35 Tcf of proven gas reserves on the North Slope, and the potential for 200 Tcf more both onshore and offshore of the state's northern coast. Alaska also has a 44-year history of shipping LNG from Cook Inlet to Asia from Nikiski (see Daily GPI, April 14, 2014).

"When the prospects for Alaska gas changed from an overland pipeline to an LNG project, the federal tools changed." Murkowski said, alluding to an earlier plan to pipe North Slope gas through Canada to the Lower 48. "FERC has the ability to be the lead agency for permitting and play a coordinating role for federal agencies. Further, the Department of the Interior leads an interagency working group established through executive order to support major Alaska projects and can supplement FERC's lead on an Alaska LNG Project."

As chairman of the Senate Energy and Natural Resources Committee and the Senate Interior and Environmental Appropriations Subcommittee, Murkowski has oversight authority over the federal agencies involved in permitting an export project, including DOE and the Federal Energy Regulatory Commission.

A report commissioned by Alaska LNG from NERA Economic Consulting "...concludes that, in the expected demand scenario over a 30-year LNG export term, approximately 47.5 Tcf of natural gas supply would be necessary to meet both estimated Alaska in-state natural gas demand and Project feed gas requirements." Alaska LNG contends that in light of a reserves report by DeGloyer and Macnaughton that estimated 63.49 Tcf of expected supply and the Alaska LNG NERA Report estimate of 47.5 Tcf of expected demand, expected supplies in the North Slope are sufficient to meet and exceed expected demand for gas from the North Slope over the 30-year LNG export term.

The project backers filed with DOE for the export authorization last year (see Daily GPI, July 21, 2014). The proposed facilities include a liquefaction plant and terminal in the Nikiski area on the Kenai Peninsula; an 800-mile, 42-inch diameter pipeline; up to eight compression stations; at least five offtake points for in-state gas delivery; and a gas treatment plant to be located on the North Slope (see Daily GPI, May 7, 2014).

“The project would be the largest integrated gas/LNG project of its kind ever designed and constructed, with an estimated cost of $45 billion to $65 billion,” last year’s DOE filing said.

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