ConocoPhillips says stance on LNG remains the same

Prospects for liquified natural gas project aren't any better than in 2001

Posted: Wednesday, July 16, 2003

ANCHORAGE - A ConocoPhillips Alaska Inc. executive told board members of the new state gas pipeline authority that its view of shipping liquefied natural gas from Alaska remains the same.

Joe Marushack, ConocoPhillips' manager for North Slope gas commercialization, said it doesn't look any better now than it did in 2001, when the company led an industry consortium that spent $14 million researching an LNG project, according to the Alaska Journal of Commerce.

"We're not here to dissuade you from an LNG project, but to tell you why we found it to be uneconomic when we looked at it," Marushack said earlier this month.

Authority board members had returned from a June 28 meeting in Valdez enthused about prospects for LNG, particularly on the West Coast.

In Valdez, managers for Korea Gas, an Asian LNG importer, and Sempra Energy, which hopes to build an LNG regasification terminal in Baja California, told Gov. Frank Murkowski, Alaska senators Ted Stevens and Lisa Murkowski and about 60 others that they and others are interested in buying LNG from Alaska.

Marushack urged the state authority board members to be cautious about prospects for LNG exports to California. There are now no LNG receiving terminals on the West Coast.

ConocoPhillips itself is involved in a Baja California LNG terminal venture and a host of problems have developed with local opponents and permitting authorities, he said.

Proponents of three other Baja LNG terminals are encountering similar problems, and four proposals for LNG terminals in southern California face even more serious permitting and political challenges, Marushack said.

Shipments of LNG from Alaska to a California terminal may also have to be in U.S.-built LNG tankers because of the federal Jones Act, and these will be more costly to build than tankers built in foreign shipyards, he said.

The West Coast gas market isn't all that big, either, Gary Endorf, of ConocoPhillips' Alaska gas group, told the authority. Endorf shared in the presentation with Marushack.

Endorf cited a study by the National Petroleum Council, an industry group, which estimated that by 2010 U.S. demand for new natural gas supplies will reach 52 billion cubic feet per day (BCFD). Only 3 BCFD of that is on the U.S. West Coast, however.

The same study said new gas demand in Asia in 2010 will be about 6 BCFD.

In Asia, supplies of LNG from new projects now planned, not including Alaska, are twice what demand will be in 2010 under the most aggressive growth scenario, Endorf said.

It's for this reason that ConocoPhillips and other North Slope gas owners want to build a pipeline into the U.S. heartland. That's where the big demand is, Marushack said.

As for the eight LNG terminals planned for Baja or California, in the end the market will justify only one, he said. That's not enough to be the anchor customer for a $10 billion Alaska LNG project, Marushack said.

As for LNG supply, there is so much surplus capacity in existing and new projects in Australia, Southeast Asia and Sakhalin that California can be supplied at prices below the cost of what LNG can be shipped from Alaska, Marushack said.



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