Exxon Mobil Corp. says it plans to sell North Slope natural gas - about 10 billion cubic feet a year - and it won't need a highly debated multibillion dollar pipeline to do it.
It's not a blockbuster deal announced Tuesday with Fairbanks Natural Gas LLC and it won't shake up the market, but it still means gas - long stranded on the North Slope - is finally being commercialized.
Put in perspective, the annual sum Exxon Mobil plans to sell next year is just slightly more than two days worth of gas that industry officials and lawmakers hope one day to send to North American markets.
Despite the small amount, lawmakers and company officials say the company's deal with Fairbanks Natural Gas represents a first step to marketing nearly 35 trillion cubic feet of natural gas reserves that have been ready for sale - if there were only an economical way to get it off the North Slope and to market.
"It's important that someone is stepping forward and selling gas from Prudhoe Bay," said state Sen. Joe Thomas, D-Fairbanks. "This indicates that if there is a ready buyer, they will sell the gas."
Craig A. Haymes, an Exxon Mobil Alaska-based production manager, said in a prepared statement the deal illustrates the company's interest in selling the gas and further developing the North Slope.
"We continue to look for viable projects to demonstrate Exxon Mobil's commitment to commercializing North Slope gas," Haymes said.
Exxon shares in the leases with North Slope oil producers BP and ConocoPhillips for most of the natural gas reserves. It holds the largest working interest of Prudhoe Bay, the nation's largest oil field, at 36.4 percent.
The company also is trying to hold onto its leases on the North Slope's Point Thomson, a dispute with the state that has kicked around the courts the last few years.
Exxon Mobil's relationship with the state has been strained since the Exxon Valdez spilled 11 million gallons of oil in the Prince William Sound 19 years ago.
State lawmakers have long been critical of the company for the Point Thomson dispute and for withholding financial data that its Prudhoe Bay partners BP PLC and ConocoPhillips supply.
So when Exxon emerged as the company selling North Slope gas, many state lawmakers were stunned at the news.
"We see so much of what appears to be a monolithic front from the industry, and we know it isn't," said Rep. David Guttenberg, D-Fairbanks. "We're always delighted to see when someone steps forward."
The plan calls for Exxon Mobil to supply gas to a liquefaction plant to be built and owned by Polar LNG LLC, an affiliate of Fairbanks Natural Gas. From there FNG will truck the gas 500 miles south the Fairbanks and sell it on the retail market. The deal is for 10 years, beginning mid-2009; financial terms were not disclosed.
"It may be small, but this helps by showing there is a way of getting that gas to market," said Sen. Gene Therriault, R-North Pole. "It would lead you to believe if you truck it and make a profit, you should be able to send it down a pipeline."
The state has tried for decades to get a natural gas pipeline built, but until a few years ago, it was not considered economic.
That thinking changed with natural gas futures trading in the mid-$8 range and the prospects of prices falling below $4.50 increasingly remote.
The implications for heating homes and business throughout North America have also grown as energy prices continue to increase.
Two years ago, former Gov. Frank Murkowski settled in principle with the North Slope leaseholders on fiscal terms - taxes and royalties - for producing the North Slope gas.
But the Legislature never voted on the deal with many believing it gave away too much to the companies and stripped the state of its sovereignty. Additionally, the agreement did not guarantee a pipeline would get built.
Last year, the state passed the Alaska Gasline Inducement Act, or AGIA, a law from new Gov. Sarah Palin. It calls for bidders to guarantee progress toward construction of a pipeline and is friendly toward new energy exploration.
Only one of five bids - TransCanada Alaska Co., LLC/Foothills Pipelines, Ltd. - has advanced to the next round of consideration, a public comment period. After that process is completed in March, Palin's administration may ask the Legislature to issue the company a state license, or the right to build a multibillion dollar pipeline.
Neither BP nor Exxon submitted applications under AGIA. ConocoPhillips submitted what it called an alternative proposal, which was rejected by Palin. She and her gas line team met with ConocoPhillips' officials for four hours on Sunday, but Palin said it was a courtesy meeting and should not be considered as negotiations.
As lawmakers work toward getting a gas line project commitment, large amounts of natural gas comes to the surface when oil is being pumped from the state's large-but-dwindling oil fields.
The industry currently reinjects slightly more than seven billion cubic feet a day into the ground, according to a recent Energy Department report on North Slope resources.
The reinjection method helps oil companies produce more oil and stem an annual decline that is currently about 6 percent.