Alaska LNG Project Aims for 2005-2010 Asian Deliveries

Despite the growing interest by foreign markets and potential investors in the proposed LNG portion of the Trans-Alaska Gas System (TAGS), the May 22 deadline set by FERC for start-up of the construction of the export project will not be met, says the sponsor of the proposed facility. Yukon Pacific Co. L.P. has asked the Commission to extend the deadline, which was set back in 1995, until May 2001, saying that a refusal by FERC would be a "serious setback" and might cause it to abandon the LNG project altogether.

"If the [site] approval lapses, there will be a great risk that Asian marketers will turn to other foreign sources. Yukon Pacific is competing with many other LNG suppliers around the world, and it must show that it can be flexible in order to remain competitive," Yukon Pacific told the Commission [CP88-105]. It also would strand the $100 million that has been invested in the project by CSX Corp., a giant in the railway and barge industries.

The proposed plant, to be sited at Valdez, AK, would liquefy North Slope natural gas for shipment by tanker to the Asian nations of Japan, Taiwan and Korea, burgeoning markets for liquefied natural gas. The gas would be transported to Valdez over the proposed 796.5-mile TAGS delivery system. The LNG project would have a license to export about 14 million metric tons per year, but will have the capability to increase capacity as needed. The countries of Taiwan and Korea already have signed letters of intent for much of the LNG, says Yukon Pacific President Jeff Lowenfels.

The project's "primary focus" now is "securing North Slope gas sales and LNG purchase commitments and project financing," the company noted. Toward this aim, "Yukon Pacific is continuing its negotiations with all current and potential stakeholders, including Asian buyers, North Slope producers, relevant state and federal agencies and representatives, and potential investors in the project." The interest from potential investors, Lowenfels added, is "ever increasing."

Although its role is limited to sponsor now, Lowenfels said Yukon Pacific hopes to join a consortia of investors, mostly oil companies, to bankroll the TAGS system, which he estimates will cost $10 billion-$15 billion, including tankers.

He doesn't think the instability that has been witnessed in the Asian financial markets in the past months has dampened foreign interest in the LNG project. "I think overall it's had a positive impact on the [Alaska] project. Given that 70% of the LNG in Japan comes from the South China Seas [region]...the idea of being able to have a stable source is very, very attractive" to the Asian nations, he noted.

"The economics of the project look very good" to these countries, Lowenfels told NGI. "Clearly the political problems as well as the financial problems" in places, such as Indonesia, are strong selling points for buying LNG from the United States.

He noted that several wheels are in motion in Alaska to help make the LNG facility a reality. In February, Alaska Gov. Tony Knowles proposed legislation calling for tax incentives and other measures to improve the commercial viability of North Slope gas exports. In addition, Yukon Pacific and several North Slope producers (Atlantic Richfield, Exxon and British Petroleum) have entered into memoranda of understanding with the state to further explore steps to advance North Slope gas exports.

Yukon Pacific is projecting that LNG deliveries will begin in the 2005-2010 time period, which would be "synchronous with the [LNG] demands of the targeted foreign markets." Allowing for eight years to complete the project, construction should begin "no earlier than 1999, but probably no later than 2001." Yukon Pacific left open the possibility that it may have to come back to the Commission in 2001 to ask for another extension for the start-up of construction.

Refusing to grant Yukon Pacific an extension this time would not be in the best interests of the United States, Lowenfels said. When the project's up and running, the LNG exports will add $4 billion to the "positive side" of the nation's balance of payments each year, he estimated. "We could sell all the Chryslers, all the rice, all the cigarettes and all the apples we want and not reach that amount."

Susan Parker

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