Canadian and L48 LNG Project Progress

Pacific Northwest LNG is making progress on their LNG export project planned for Prince Rupert B.C.  From their press release:

 Pacific NorthWest LNG Ltd. has awarded Front-End Engineering and Design (“FEED”) contracts for its proposed liquefied natural gas (“LNG”) facility in British Columbia to three international engineering contractors - Bechtel, KBR/JGC joint venture, and Technip/Samsung Engineering/China Huanqiu joint venture.

The project timeline currently aims for an investment decision in 2014 and project completion in 2018.

Also - Real progress on L48 LNG projects

Sabine Pass Liquefaction Project ( In Construction) 2.2 BCFD equivalent with room to expand, customers and financing locked in.

Feeeport LNG (clearing permitting hurdles)  2.0 BCFD equivalent, customers signed on, construction planned to start later this year.

Once again Alaska is getting left behind.  Every day and every time I hear about another project announcement I grow a little closer to the "never going to happen" point of view for the Alaskan LNG project.

SB 21 Link

Link to the Oil and Gas Tax Bill SB-21

2013 Alaska Gas Heroes and Zeros

Heroes

(1)   Great Bear Petroleum.  These guys took a fresh look at Alaska’s petroleum resources, invested in their ideas and completed their objectives.  New gas and new oil from Alaskan shale deposits will fill the oil and gas pipelines in the future.  Great job – best wishes for continued success.

(2)    Everyone working at Point Thomson.  Oil and gas from Point Thomson will fill the pipeline(s).  All the hard work at Point Thomson will pay off in the future.

(3)    ExxonMobil & The State of Alaska – Nice job on the Point Thomson settlement.

(4)   Governor Parnell – Ramped up his game in 2012, meeting with North Slope Producers CEOs - Bob Dudley of BP, Jim Mulva of ConocoPhillips and Rex Tillerson of Exxon Mobil.  The Point Thomson settlement cleared the deck and in March 2012 the producers announced that they had aligned. He also hit the road and started talking to LNG customers.

(5)    Pedro van Meurs – Keep on sticking to the math and providing reality checks.

(6)   LNG Buyers – The Alaska Gas project is a nonstarter without LNG Buyers and this year we started seeing Japanese and Korean LNG Buyers enter the picture.  With a bit of luck the buyers will become equity partners and help move the project forward.

(7)    Cheniere Energy & Sasol.  Cheniere is moving forward with a lower 48 LNG export project and Sasol is moving forward with a lower 48 gas-to-liquids (GTL) project.  These types of projects will sponge up lower 48 shale gas, and boost gas prices.  Projects like these lead the way and Alaskans should take note and understand the parameters of real world natural gas success stories (here’s a hint – fiscal certainty).
8)  Combined Cycle Power Plants.  One by one high efficiency combined cycle power plants are coming on line.  These plants will replace aging coal plants over the next decade and consume lots of lower 48 natural gas, which will help build natural gas prices back up to a reasonable level.  Anything the builds lower 48 gas price support helps the Alaska gasline project.  Congrats to TVA for bring the John Sevier Combined Cycle plant online ahead of schedule and below cost.

Zeros

(1)    Matt Damon.  Shale gas hater Damon received funding for his anti-shale gas movie from the United ArabEmirates.  The public discourse about lower 48 shale gas ultimately impacts the price of gas, jobs and the future of gas exports from Alaska.  Bad shale gas law could choke Alaskan shale gas development. The American electorate is about as uninformed, uneducated and mathematically impaired as is possible.  It’s sad to see the simpletons led astray by one of our own funded by those who will profit from our poverty. (Ask me how I really feel!).

(2)   The 2012 presidential campaign.  There was no real discussion of the economic benefits of domestic energy development – a real missed opportunity.  Good policies now could help Alaska in the future. In 2008 I looked forward to 2012, now I’m almost certain that we are in the first years of the idiocracy.

(3)    I could name some other maladroit zeros closer to home, mainly for inaction, but for the time being I’m hopeful that project alignment, real customers and forward momentum will pull them along.

 Good luck in the new year, and work safely.

Vladivostok LNG or Alaska LNG - You're doing it Wrong

Vladivostok Gas Line

Alaskans have again proven they are less nimble in the marketplace and less capable than than other stranded natural gas owners.  Gazprom has announced their plans to build a 2000 mile long gas pipeline (over twice the length of the proposed North Slope to Valdez gas line) to feed a planned LNG plant in Vladivostok.  The LNG plant capacity will be between 10 and 20 mmtpa compared to 25 mmtpa for the Alaska LNG project.  The "all in" cost for field development, pipeline and LNG plant is $44 Billion.

The field development cost is $13.9 Billion and the pipeline cost is $24.8 Billion leaving $5.3 Billion to build the LNG Plant plant.   Assuming a capacity range of 12.5 to 15.0 mmtpa the Gazprom investment equals $2.93 to $3.52 Billion per mmtpa of LNG capacity compared to $2.00 to $2.56 Billion per mmtpa of LNG capacity for Alaskan LNG.

The Gazprom LNG plant cost may be understated, but there is no good reason for Gazprom to bring LNG to market for less cost than the Alaskan project.

The clear message: Alaska LNG - You're doing it Wrong.  Alaskan gas is developed, the distances are less. The customers are the same.  The steel, the talent, the jobs are headed out for projects in all locations outside of Alaska.

Good Luck Gazprom - your investment is safe as long as Alaskans keep kicking the can down the road on the Alaska LNG project.

Alaskans need to learn from this, pick apart the numbers and figure out how to get in the game before the game is over.

Here's the winning formula: Fiscal Certainty + Customer Equity Participation - Taxation Gluttony - Sound Bite Populism = Alaska LNG success.

Kitimat Study Released

The next phase in development of the Alaska Gas Pipeline as defined by Governor Sean Parnell will be:

Third Quarter 2012: Two State-funded groups working on parallel projects must complete discussions to examine consolidation prospects. The groups are the North Slope producers and TC-Alaska (MOU parties) and the Alaska Gasline Development Corporation (AGDC).

While waiting for this milestone you might want to read some good papers from the Canadian Energy Research Institute (CERI) Website.

The latest paper titled "Pacific Access:  Part III - Economic Impacts of Exporting Horn River Natural Gas to Asia as LNG" is written from the perspective of Canadians analyzing the proposed Kitimat LNG project.  A lot of the data applies to decisions facing Alaskans.  The paper is well referenced and you can glean a lot of data.  For example: Total LNG Exports equal about 240 mmtpa.  The proposed Alaska LNG project would  added about 20 mmpta to that total, approximately 8% of the total market.  Capital cost of LNG plants are also addressed.  There's a fair amount of quantified data on shale gas production cost too.  File that under good-to-know but remember all shales are not equal and Alaskan shales are not yet proven producers (Although I'm wishing Great Bear the best of luck).

Another good reference is the KBR report titled "LNG LIQUEFACTION —NOT ALL PLANTS ARE CREATED EQUAL"

I hope these provide you something to read and study as we patiently await the September kumbaya milestone. My definition of September success is projects merged into one common plan.

Good Luck Great Bear

There's no news to discuss on the Alaska Gas Pipeline front but I did take note of Great Bear Petroleum's efforts on a shale oil well (LINK):

Alaska-based independent Great Bear Petroleum is now drilling its first North Slope test well to assess the potential for production of oil from shale formations in the region, similar to the way oil is being produced in the Bakken and Eagle Ford shale formations of the Lower 48 states, the president of Great Bear said Friday.

More production from a new resource will help refill TAPS and may contribute to a new source of gas production.  Without risk takers and innovators like these we would all be sunk.  


I wish them the best of luck and a safe and productive project.  

Nova Gold Donlin Feasibility Study Complete - Includes Gas Line

Another milestone for gold mine developer Nova Gold.  The Donlin feasibility study is complete (LINK).  According to the new release NovaGold will power the mine with gas (LINK). Quote:

The capital cost of $6.7 billion, which was approximately $300 million lower than the guidance provided in September 2011, now includes the construction of a 500-kilometer natural gas pipeline that, at a cost of approximately $1 billion, which would deliver natural gas from the Cook Inlet to the mine site, and $984 million of contingencies. The change to utilizing natural gas was previously described as an upside case for the updated feasibility study. Its confirmation of viability is indeed an important modification that is believed to improve numerous project parameters including lowering operating costs; improving environmental management and social
infrastructure; providing flexibility for future operational modifications; and facilitating potential increases in the scale of operations in this geologically prospective district. The Company believes that the long-life nature of the Donlin Gold Project offers the potential to lower the capital expenditures through long-term off-take with third-party providers, including supply of natural gas. The Company now anticipates the Project permitting to commence in the first half of 2012.

From the NovaGold website this nugget (LINK), Quote:

Natural gas will be delivered to site by a 500-kilometer-long 12-inch-diameter pipeline. It will serve as the energy source for on-site power generation. This natural gas pipeline is a lower-cost alternative to the previously considered barging of diesel fuel. Operating costs include importing liquefied natural gas (LNG) by ship to Anchorage and total delivery costs to site which includes ship based regasification of the LNG and delivery from Anchorage to the Donlin Gold project via the pipeline. There may be an opportunity in the future to source natural gas from within Alaska.

Maybe this gas line is GO.  I'm still hunting a link to the actual study, I'll post a link when I find it. (UPDATE - Found the file.  Go to LINK then click on "View this company's public documents" and search for "Technical Report (NI 43-101)" dated Jan 12 2012). (Better link on the company website LINK).

Sounds like the NovaGold study is based on $13.33/MMBTU LNG from outside Alaska with the possibility of obtaining gas from within Alaska at some point in the future.  Their approach is a good one - Project cost are independent of the outcome of the larger Alaska Gas Pipeline debate / projects.

Good luck NovaGold - Best wishes for a safe and productive project.

More Gulf Coast LNG Sold

Cheniere Energy Partners has signed another deal to export LNG from Sabine Pass - this time to the Indian utility company Gail, (LINK) and quote:

State-owned gas utility GAIL India today said it has signed an agreement to buy 3.5 million tonnes a year of LNG for 20 years from a US firm to meet India's growing energy needs.
"GAIL has signed a Sales and Purchase Agreement (SPA) for supply of LNG over 20 years with Sabine Pass Liquefaction, LLC, a subsidiary of Cheniere Energy Partners, LP, USA for supply of 3.5 million tonnes per annum of LNG," the company said in a press statement here.  

Supplies may start as early as 2016."Under the SPA, GAIL will pay Sabine Liquefaction as per contractual provisions on a Henry Hub (US gas benchmark) basis after transfer of custody on FOB. LNG will be loaded onto GAIL's vessels," it said.The SPA has a term of 20 years commencing upon the date of first commercial delivery, and an extension option of up to 10 years.

It's interesting to note that the price of LNG under this agreement is indexed to Henry Hub vs. WTI or Brent crude.  That indicates that the buyer believes in long term low Henry Hub prices and sought to de-link their gas price from crude.  For Cheniere, indexing to Henry hub allows them to operate the plant and collect a predictable margin regardless of variations in the crude market.

Of course this is all very interesting for Alaskans.  First - Exporting lower 48 shale gas as LNG is a good thing because it builds support and stabilizes demand for L48 gas.  Second - it shows that long term LNG deals are possible, but the terms of the agreements have to be smart and fair to both parties. Third - I'm interested to see announcements of LNG export deals vs. announcements of new combined cycle power plants.  The export market may beat domestic power producers to the punch.

ConocoPhillips - LNG Makes Sense for Stranded Gas

ConocoPhillips is busy around the world with new LNG projects.  According to this article (LINK) Australia is first in ConocoPhillips mind but they are looking at potential projects in the US and Canada.  Quotes:

ConocoPhillips is studying North America's potential to export natural gas, but it isn't high on its priority list and any rush to build terminals on the U.S. coast could face opposition from Washington, Al Hirshberg, the company's Senior Vice President, Planning and Strategy, said Thursday.

"I just don't see it," Hirshberg said. "Five years from now Queensland will be a major spot on the map, as well as Western Australia in terms of LNG export, and the U.S. Gulf coast won't be, that's my prediction." 

"Canada's a little different," he told Dow Jones Newswires in an interview. "The gas in Canada is stranded, it really doesn't have access to a market so spending the money to liquefy it and get it ready for export is going to make long-term sense."

Similar logic may apply to stranded Alaskan Gas.  Probably not, but exportation of other gas plays helps build price stability which in turn helps the prospects of the Alaska Gas Pipeline.

The Future of Natural Gas

The Economist has a new article on the future of natural gas. (LINK). No big surprise the future is shale gas and global trade in LNG. The article also points to a study conducted by the James Baker Institute (LINK).

The take away point of the article and the study is that shale gas has changed the global energy balance. The new global top three gas reserves are, in order, Russia, China and USA. If we combine Canadian and American gas the ranking becomes Russia, North America, and China.

Here's a tabulation of the data showing US Energy Information Agency (EIA) estimates of conventional gas and technically recoverable shale gas by country:

The Baker Institute study estimates American recoverable shale gas at 637 TCF. The Baker Institute also estimates the average break-even pricing of shale gas plays (Table 1). The average break even price works out to $5.42/MMBTU with a standard deviation of $1.00/MMBTU indicating that shale gas producers will drill and develop shale gas when the market price ranges no lower than $4.42 to $6.42 per MMBTU. The low range rings true based on the past year or two of gas prices and the upper range rings true as shale gas developers now tend to target "wet" shale gas to boost the net revenue per well.

What does this mean for Alaskan Gas? First I'm encouraged to see general agreement on the scale of global shale gas. No one can be expected to invest in Alaska if global shale gas was too cheap to meter - but that's not the case. Gas prices have tested the $4/MMBTU support level and producers will shut in wells rather than sell gas below that level. As the uncertainty fades away an Alaskan Gas Pipeline becomes bankable. It won't be wildly profitable, but a gas line can be built - keep in mind that conventional gas from Alaska is loaded with the same natural gas liquids (NGLs) the boost the revenues of "wet" shale gas plays.

Uncle Ted Remembered

The early reports were confirmed this afternoon, Ted Stevens lost his life in a plane crash on his way to go fishing with friends. (LINK)

I felt pretty deflated when Senator Ted Stevens was drummed out of office a couple of years back. Today I feel plumb awful. His work on behalf of the people of Alaska and the entire United States has been greatly missed. His passing marks the end of an era.

The photo above shows Senator Stevens, Senator Inouye and Major General John Holly on a visit to military construction site I worked on a few years ago. Senator Inouye is wearing a lei fashioned from whirly gig fishing lures. General Holly is explaining what we built with the tax dollars the Senators allocated to our project. I don't normally rub shoulders with the higher ups but I was very impressed to listen to questions the senators asked and the answers they received. In a world full of second rate soft headed middle managers I was glad to learn that the guys in charge were first rate thinkers and top notch leaders.

On another occasion Uncle Ted brought Thanksgiving dinner to the post with assistance of the Alaska National Guard. Outside of Alaska I don't think the ordinary guy is ever on the receiving end of a nice visit and a hot meal from a senior elected official who rides into town in a C-130. Sure all politicians press the flesh, kiss babies and want votes, but I think Ted Stevens enjoyed seeing the people of Alaska and filling the role of the favorite uncle.


A chair was set up for Uncle Ted to play the part of Santa and entertain the kids after the meal. I stood in the chow line with Uncle Ted and ask him about my favorite subject - the Alaska Gas Pipeline. I asked him if Santa Claus would bring Alaska a gas pipeline. Ted Stevens laughed and told me I was like the guy who asked Santa for sports car and awoke to find matchbox toy car in his stocking. He told me that I might find a soda straw in my stocking instead of a full sized pipeline. That was years ago and I'm still asking Santa for a pipeline and waking up to find something much less.

We'll miss you Uncle Ted.

MIT: The Future Is A (Natural) Gas

From the Forbes blog (LINK): MIT has published an interim report titled "The Future of Natural Gas". The theme is carbon foot print theme in which shale gas comes to the rescue. The Alaska Gas Pipeline get mentioned as a future resource:

Around 15% of the U.S. resource is in Alaska; full development of this resource will require major pipeline construction to bring the gas to market in the lower 48 states (L48). Given the current abundance of L48 supplies, development of the pipeline is likely to be deferred yet again, but this gas represents an important resource for the future.

Alaska's methane hydate gas resource is mentioned:

Methane hydrates are unlikely to reach commercial viability for global markets for at least 15 to 20 years.

The report concludes

The share of natural gas in the energy mix is likely to be even larger in the near to intermediate term in response to CO2 emissions constraints.

I guess it's a given that our future energy policy will be crafted around the idea of climate change. Coal will become illegal, maybe nuclear will produce power for electric cars someday, but you can put nasty ole petroleum in your SUV or buy a combined cycle gas turbine power plant today for a lot less capital investment.