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Alaska Officially Turns to LNG Solution for North Slope Gas

On Wednesday market forces officially shifted Alaska's effort to commercialize its North Slope gas from a Lower 48 pipeline project to an in-state pipeline with gas liquefaction and export capability to serve high-value Asian markets. Along the way to export, some of the gas would be diverted for use in state.

The rethink on how to achieve the long-sought goal of commercializing Alaska gas began in earnest earlier this year when oil and gas producers settled their long-running dispute with the state over Point Thomson leases and pledged to explore a liquefied natural gas (LNG) option.

CEOs of ExxonMobil, ConocoPhillips and BP plc said the concept of having large-scale LNG exports from Southcentral Alaska would be explored as an alternative to building a pipeline to connect to Alberta (see Daily GPI, April 2).

The three producers along with TransCanada Corp. -- the original winner of the Lower 48 gasline concession under the state's Alaska Gasline Inducement Act (AGIA) -- are now tasked with completing by Dec. 31 an assessment of interest among producers, explorers, LNG terminal developers and others that might become involved in an export project.

The decision came Wednesday in the form of a project plan amendment (PPA) signed by state Natural Resources Commissioner Dan Sullivan and Revenue Commissioner Bryan Butcher that allows TransCanada to shift its project focus under AGIA.

The commissioners authorized TransCanada to perform its share of the LNG work as part of its AGIA license. The license requires the project to be developed in a manner that maximizes in-state benefits while facilitating large-scale export. The license entitles TransCanada to reimbursements for its work on a gas pipeline and related midstream facilities but does not authorize reimbursement for work by the producers on other aspects of the LNG project, such as an export terminal or upstream mitigation work that may be necessary in advance of a major gas sale.

"A key benefit of the PPA is that it enables all parties -- the North Slope producers, the state and the AGIA licensee -- to come together for the first time to work on commercializing North Slope gas," said Kurt Gibson, director of the Alaska Gas Pipeline Project Office, which oversees work by TransCanada on the project.

The commissioners also postponed for two years TransCanada's October 2012 deadline to apply to the Federal Energy Regulatory Commission for authority to build and operate a Lower 48 pipeline.

The potential for a change to the Lower 48 project plan was anticipated in the original AGIA documents, a section of which said the licensee (TransCanada) can change the project if necessary "because of changed circumstances outside of the licensee's control and not reasonably foreseeable before the license was issued."

During the early days of AGIA five years ago (see Daily GPI, July 6, 2007), the U.S. Lower 48 shale gas renaissance was yet to come. Now, on the strength of shale gas production, multiple parties have proposed liquefaction of domestic gas and export from the U.S. West, East and Gulf coasts, and projects are under way to do the same in British Columbia with gas from Western Canada.

The change of plans is intended to keep with a timetable for work on an LNG project outlined by Gov. Sean Parnell in January (see Daily GPI, Jan. 20, 2012).

The PPA calls for TransCanada to complete initial work on an LNG project by September and conduct a market solicitation by year's end to all potential market participants, including those that might import Alaska gas into Asian and other markets. The state expects TransCanada to provide early next year an updated, more comprehensive PPA request that will reflect details of an LNG project and its timeline.

About half of the work done by TransCanada so far on a potential pipeline to Alberta, including engineering and environmental studies is relevant to an in-state line with LNG, commissioners said. The PPA is said to prevent unnecessary spending on the Alberta option while an LNG option is being developed.

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