Alaska South Central LNG (SCLNG) Project update.

Project update.  MAY 2013 (LINK) 

FEB 2013 (LINK)

More Lower 48 LNG Exports

The idea of lower 48 LNG exports is becoming a reality. A few months back Cheniere start the trend. I made this prediction last November:

What's next? - I assume the Cheniere business model is a good one and similar import terminals with the right ingredients will follow suit.  See page 38 of the Cheniere presentation (LINK) for plant volumes. 

This week the Department of Energy authorized Sempra to export LNG from the Cameron Parish Site (LINK), and quote:

HOUSTON -(MarketWatch)- The U.S. Department of Energy said Friday it has authorized Cameron LNG to export liquefied natural gas, opening the door wider for U.S. natural gas companies to send their bounty overseas.
The export permit is only the third awarded in the U.S. It allows Cameron, a wholly-owned subsidiary of California-based natural gas distributor and marketer Sempra Energy, to ship up to 1.7 billion cubic feet a day of LNG from its in Cameron Parish, La., facility to countries possessing free-trade agreements with the U.S. 

Here's a list of existing North American LNG import terminals with my analysis of proximity to shale gas (including the pipeline infrastructure to move the shale gas) Note, this table does not include the 2.8 BCFD proposed Gulf Coast LNG Terminal, Brownsville Texas:

The plan to convert LNG import terminals into an export terminals make sense for terminals located near shale gas fields and adequate pipelines. By this analysis there's good potential for four more new export terminals.  Two of those potential sites are controlled in part by Alaskan North Slope producers. I say this to illustrate the business decision before the producers: Build liquefaction  units at existing lower 48 import facilities -or- build a North Slope gas treatment plant, a $20 billion pipeline to Valdez, and a liquefaction at Valdez.  Obviously the Alaska LNG option is pointless unless North Slope gas is priced at a deep discount to Henry Hub.  How deep?  To defer the cost of $20 billion gas line to Valdez North Slope gas needs to sale for $1.50/MMBTU less than Henry Hub (based on a discount cash flow over 20 years at 5%).  

Now this isn't all bad news.  In the best case scenario the four import terminal near shale gas listed above are all converted to LNG export pushing the Henry Hub price of gas up into the $5 or $6/MMBTU range.  At that point in time Alaskan gas will not need to compete with the low capital cost of import facility conversion and the deep discount will not be a factor.  In the mean time it's important to remember the North Slope producers can sell LNG from lower 48 import terminals for less cost compared to building an pipeline to Valdez. 

Prediction - expect more announcements of lower 48 LNG import facility conversion to export.

For more information on the effects of LNG export see the  EIA report (LINK), and

Brookings Institution study on exporting LNG from the United States (LINK)

Denali Open Season Ends 4-OCT-2010

Tomorrow marks the end of Denali's open season. Hundreds of millions have been spent on the Denali and the TransCanada open seasons, hopefully not in vain.

Three years down the road from passing the Alaska Gasline Inducement Act the world has changed a lot, mostly in ways that should make any sane person run like hell from this project - The international economy tanked, the price of oil and natural gas plummeted, and $6/MMBTU shale gas looks like it's here to stay. The pipeline contenders have experienced a wide range of fortunes over the past three years:

TransCanada - Continues to execute successful pipeline projects in North America like the Keystone pipeline - moving heavy Canadian petroleum products to the lower 48.

ExxonMobil - Earnings hit by declining commodity prices but now they are a big player in shale gas via acquisition of XTO. ExxonMobil is also adding Alaska Gas reserves by the bit up at Pt. Thomson. LNG, Shale Gas, Alaska Gas - it's all earning for ExxonMobil - they play to win.

ConocoPhillips - CEO James Mulva "re-evaluating the Alaska project in light of a glutted natural gas market" according to one report, followed by "Oh no - really we stand by the project" statements - I think the first story is closer to the truth, the re-eval will start next week.

BP - The Macondo blowout has cost BP at least $20billion and there's talk of a pull out from Alaska. It's unclear if a crippled BP brings anything positive to the table.

There's also some good news out there:

The shut-in price of Shale Gas seems to be holding at $6/MMBTU - I view that as solid base that will contain the Shale Gas glut.

The commodity price pendulum cuts both ways - Oil and Gas are cheap right now but STEEL is cheap right now. Engineers are cheap too and there are few major projects mopping up the excess - but watch out for the "recovery" when commodity prices recover.

Interest rates are out of this world cheap - Now is the best time in 30 years to fund a mega project.

I expect the pipeline project to continue sideways for at least the next year. Expect talk of project consolidation in the near term.

Yukon Pacific LNG - Anderson Bay

Who would want to build an LNG plant near Valdez I wondered when the TransCanada/ExxonMobil open season documents came out describing an optional line to Valdez. I figured ConocoPhillips / Tokyo Electric - Tokyo Gas would surface as likely LNG plant builders, or maybe the Chinese or Koreans. Scratch that prediction - turns out Yukon Pacific (owned by CSX) has filed with FERC for an extension . (LINK to Petroleum News)

Yukon Pacific argues that the current open season efforts justify an extension. Quoting from the FERC filing:

There is now an additional reason for extending Yukon Pacific’s deadline. Since the Commission’s 2007 extension, industry efforts to commercialize North Slope gas have increased dramatically. The most visible and meaningful of these are the “pre-filing” steps taken by the two leading projects for delivering North Slope gas to Alaska and Lower-48 markets. The implementation of either project would greatly facilitate LNG exports by, among other things, creating pipeline infrastructure that can be leveraged. Given these developments, it is important that the LNG option represented by Yukon Pacific’s proposal remains viable as the “open-season” and other market-related activities for these projects play out. The ongoing effectiveness of the place of export approval granted in this docket is critical to that viability.

Of course every Alaska Gas silver lining has an associated cloud called Tom "Playa Hater" Irwin. A couple of years back he denied a Yukon right of way request. (LINK)

Maybe the stars can align for the LNG option -


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Open Season - It's a Go!

Today marks a significant milestone in the process to build the Alaska Gas Pipeline. TransCanada and ExxonMobil (Alaska Pipeline Project - APP) have announced (LINK) the beginning of the open season.

Two options are on the APP menu - Pipeline to Alberta, or Pipeline to Valdez for a future LNG plant.

Later this year the Denali Pipeline (LINK) will get cracking with their open season for a competing pipeline to Canada.

The score so far for those playing the game at home:

TransCanadaExxonMobil (APP) Using other peoples money (AGIA) +1, First Open Season +1, Multiple Options including an All Alaska option +1 (Subtotal +3). Denali Pipeline: Still in the game +1, Second out of the chute -1, no all Alaska option -1 (Subtotal -1). Both projects get a -1 for failing to join up and push for one project.

Side note - An 18 month stretch of mega overtime (OT) is coming to an end for me, so I have more time to devote to fishing, and attending to this blog. I've been in the constant OT game for over a decade and I'm look forward to some 3 day weekends. On the other hand - I'd like to see a pipeline project slide into gear. With a bit of luck that might just happen. Your thoughts are always appreciated- Thanks.

Point Thomson Success

ExxonMobil Reaches Target Depth at First Point Thomson Well.

Plan the work, work the plan - What's not to love about this news? Politicians be damned. This team has a plan to develop the gas that will fill the pipeline.

From the Press Release: ExxonMobil drilled the well to a measured depth of over 16,000 feet. The shore-based rig directionally drilled under the Beaufort Sea to the targeted gas reservoir more than 1.5 miles offshore.

“This is another successful milestone for the Point Thomson project,” said Dale Pittman, ExxonMobil Alaska production manager.

ExxonMobil Senior Project Manager Lee Bruce added, “PTU-15 pushed the limits of drilling technology and demonstrated that the Point Thomson drilling plan is sound.”

The rig will be moved to the second development well at Point Thompson (PTU-16) and continue drilling. Work continues on front-end engineering and design for the initial production system.