By Lauren O'Neil
Natural Gas Week, Energy Intelligence Group
WASHINGTON -- Exporting Alaskan North Slope natural gas resources as LNG to Oregon, Hawaii or Asia -- an option TransCanada and Exxon Mobil are offering for their gas line project to the lower 48 -- faces several challenges but key stakeholders said it offers a range of benefits.
Alaska gas could diversify the options available to North Slope producers looking to market their production, while providing an economic source of supply for LNG import projects on the west coast of the US and Mexico, government officials and industry sources tell Natural Gas Week.
Nonetheless, hurdles to overcome include building necessary infrastructure, coordinating transport so southcentral Alaska has enough supply, and penetrating difficult regulatory environments in California, Washington and Oregon.
In their 2010 open season, TransCanada will allow stakeholders to bid on capacity for a spur line headed for Valdez in southcentral Alaska, which would diverge from the main pipeline to the lower 48 before it passes into Canadian territory.
"We've had discussions with potential customers that want deliveries in Alaska or to Valdez or to Alberta. And for those interested in deliveries to Valdez, some of them want to deliver into the lower 48 and others want to take that gas to Asia," said TransCanada Vice President for Alaska Development Tony Palmer.
"The parties that are looking at sending LNG to the lower 48 would be looking at West Coast terminals or Mexico. Those interested in serving Asia are looking at the handful of major LNG importing countries," Palmer added.
The Alaska Gas Line Port Authority, Mitsubishi and Sempra are all collaborating to arrange a liquefaction facility at Valdez supplied by some of TransCanada's gas line supplies.
"Those who have thought LNG is the appropriate way to commercialize the North Slope gas, frankly, haven't changed. They are still there," said Drue Pearce, federal coordinator for Alaska natural gas transportation projects.
Pearce said new LNG export projects-- aside from the existing Kenai export terminal serving Asia -- have been a popular idea in Alaska for decades.
"But there's never been a time when Alaska players and the Pacific Rim have been aligned at the same time," she said. "Alaska has not been able to propel an additional LNG project forward partly because the producers have not been involved in the pipeline project before."
North American gas may have a place in high-demand Asian markets. Illustratively, the Kitimat LNG export project in British Columbia recently received a huge commitment from the Korean Gas Corporation, who plans to purchase 40% of the terminal's capacity over a 20-year period (NGW Jun.8,p12 ).
"The differentials for an LNG project from Alaska into Asia could be quite attractive," said Ed Kallio, manager of gas consulting for the Ziff Energy group in Alberta.
The shipping charges of sending gas to Asia might cost $1 to $1.50/MMBtu, but oil-based LNG spot prices in Asia, which have recenty hovered around $12/MMBtu, might make it worth the effort. "So for a producer, it could be very attractive to sell part of your portfolio based on an oil-based price rather than a natural gas price," Kallio said.
And Asian energy demand is expected to rise over time, notes Tony Izzo, gas supply coordinator for the Alaska Natural Gas Development Authority, a state agency.
Korea's commitment to purchase gas from Kitimat "confirms the fact that there's an interest in Asia [for North American gas], and we believe that interest is going to increase. Demand has shown an upward trend in Asian markets and we have reason to believe that will continue," he stressed.
Exxon's decision to join the TransCanada project builds more momentum for the LNG export option, he adds (NGW Jun.15,p1 ). "Obviously Exxon has the largest supply of gas on the North Slope. Having an entity as successful as Exxon involved at this point does increase the optimism for LNG exports," Izzo said.
Furthermore, North Slope supplies transported to Valdez could enter the grid and serve customers in the Cook Inlet of southcentral Alaska. The region is expected to face a gas shortage in 2014 -- or possibly sooner, now that prominent producer Marathon Oil is cutting its budget (NGW May 25,p1 ).
"A pipeline that were to come down within any proximity of the southcentral Alaska region makes available access to reliable, long-term energy supply and it could help reduce the costs to customers," Izzo said.
New supplies could replace some lost gas supply, revitalize Alaska's petrochemical industry, and provide "a lower cost energy for rural communities that may be served only by barge."
Nonetheless, TransCanada's Palmer said the main pipeline to Alberta could also help supply gas to the Cook Inlet: "Either the LNG alternative or the line to Canada would make it attractive for parties that are examining the option of transporting gas for south-central Alaska."
And federal coordinator Pearce said utilities and state agencies are hoping to have a separate spur line in place exclusively for transporting North Slope gas to the Cook Inlet in case a pipeline to the lower 48 does not come to fruition or arrives too late (NGW Feb.2,p2 ).
In terms of domestic markets, project leaders for Oregon LNG and Jordan Cove LNG recently told NGW that they would be more than happy to receive Alaskan LNG -- if just for part of the year.
That's because the transportation costs would be much lower than receiving gas from another region such as Indonesia or Australia, and the cargo turnaround times would be shorter. Sempra also confirmed that the Costa Azul import terminal in Baja, Mexico, would have room for Alaskan LNG shipments (NGW May 11,p6 ).
However, "the US West Coast market isn't growing and its pretty adequately served by natural gas," cautions Ziff Energy's Kallio. "Demand is going to be relatively flat through 2020 and beyond. It's also a tough place to build LNG regasification facilities because of local opposition. That's why you saw the Costa Azul project being built on the Mexican side of the border rather than in California."
Moreover, transporting all the gas into Canada could be more advantageous to TransCanada and Alberta petrochemical industries, he said. "I wonder whether TransCanada's heart would really be into it. They would much rather all the Alaskan gas flow through the Alaska pipeline and into their system because gas supply in the Western Canadian Sedimentary Basin is declining, so a lot of their pipeline is running empty."
**posted with permission and courtesy of Natural Gas Week and Energy Intelligence Group**