T he Alaska Gasline Port Authority believes that the state of Alaska is uniquely positioned to finally cause a gas pipeline to be built. After nearly 10 years of hard work to bring North Slope gas to market, here is what we have learned.
For starters, drawing on $10 million of studies done by The Bechtel Corp., we now know the economics of an liquefied natural gas project are superior to a pipeline to Alberta, Canada. LNG allows Alaska's gas access to the North American West Coast or Pacific Rim markets, with the optionality to obtain the highest global value for Alaska's gas. Asian LNG prices are projected to offer an average premium of over $3 per million Btu higher than the Alberta market price in the coming decades.
Premium prices for LNG, coupled with competitive costs of transportation to the target markets, result in higher wellhead prices. This translates into higher revenues for the state and higher returns to North Slope gas producers, even if the project ships less gas than a pipeline through Canada. The State's tax and royalty revenues will be more than $15 billion higher over the project's life than those from a comparably sized pipeline to Alberta.
The LNG project can be built faster than a line to Alberta by utilizing approximately $100 million in permitting work performed by Yukon Pacific Corporation in the 1990s for an All-Alaska line. Additionally, all decisions for the LNG project would be made in Alaska. A Canadian line would need to address a myriad of issues, including aboriginal land claims that have so frustrated the proposed Mackenzie Valley project, over which Alaska would have absolutely no control.
An All-Alaska project is economically viable at about 1.8 billion cubic feet per day so it only needs one of the three producers plus the state to move forward, while a Canadian project that must be a minimum of 3.5 billion cubic feet per day and requires all three producers plus the state to be economically viable. There are 35 trillion cubic feet of proven reserves on the North Slope. Thanks to the decision to take back Point Thomson, the state will soon control 12 trillion cubic feet, making it the single largest North Slope gas holder (ConocoPhillips and Exxon each have about 8 trillion cubic feet, and BP about 6 trillion cubic feet). This allows the state to directly commit more than one half of the gas needed for a pipeline to Valdez, greatly increasing the chances of achieving sufficient producer participation.
To make a gas pipeline happen, the Port Authority believes the state needs to undertake two tasks. First, the legislature should adopt necessary enabling legislation for a more economic, rapid and viable All-Alaska gasline. Second, the state should commit itself to take up to 51 percent ownership of the pipeline portion of an LNG project. The other pieces of the $23 billion project, the gas conditioning plant on the North Slope, liquefaction facilities in Valdez, and the shipping component, will fall into place easily if the state takes the reigns on the pipeline portion of the project.
This $1.5 billion investment representing one half of the equity in a pipeline 75 percent financed would fully align the sovereign and largest gas holder with a project, and would send a powerful message to third party investors that Alaska is done waiting for the phone to ring. It would also be in line with what the state has invested in other public corporations that help develop Alaska infrastructure, such as the Alaska Housing Finance Corporation, Alaska Industrial Development & Export Authority, and Alaska Energy Authority.
The Port Authority has been advised by several internationally renowned energy companies that state involvement in the pipeline would break the log jam and finally move Alaska's gas to market. It is time the state act like an owner, signal market participants it is serious about gas development, and invest capital to advance an All-Alaska project. If Alaska gets off the sidelines and leads from the front, others will follow.
Bill Walker, a lifelong Alaskan, has served as general counsel and project manager with the Alaska Gasline Port Authority since its inception in 1999.
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