Alaska to Pay $5.75 Billion for Exxon LNG Project Stake (Will Harper change his mind about direct investment in MVP?)
Alaska plans to jump-start a $45 billion natural gas export project by pitching in more than 10 percent of the cost and joining Exxon Mobil Corp. (XOM), BP Plc (BP/), ConocoPhillips and TransCanada Corp. (TRP) as an equity partner.
The agreement between the state and the four companies outlines a framework in which Alaska would take as much as a 25 percent stake in a proposed gas processing plant, an 800-mile (1,287-kilometer) pipeline from Alaska’s North Slope and a liquefaction facility in the Kenai Peninsula.
Governor Sean Parnell has asked the Alaska legislature to approve the deal and give state agencies the ability to negotiate shipping and leasing arrangements, according to a statement released today by the Alaska Department of Natural Resources.
“This is the first time we’ve had all of the parties aligned on a path forward,” Joe Balash, the department’s commissioner, said in a phone interview today before the announcement. The deal gives the project a “good shot” at proceeding, he said.
The joint venture renews a prolonged effort to harvest Alaska’s vast reserves of gas, which have remained largely untapped since the 1968 discovery of the Prudhoe Bay oil field. The North Slope holds more than 35 trillion cubic feet of discovered gas, almost four times the U.K.’s reserves.
Gas shipments may begin as early as 2021, giving Alaska a foothold in an increasingly competitive race to supply Asian countries with liquefied natural gas, or LNG, from North America. ConocoPhillips has a small LNG export plant in Nikiski on the Kenai peninsula, the only such facility in the U.S.
Cost Estimates
Although the project is expected to cost $45 billion, the final bill could reach as much as $54 billion, according to a November 2013 Black and Veatch Ltd. study produced for the state. The producers estimated in a February 2013 letter to Parnell that the cost could reach $65 billion.
Under the terms of the agreement, Alaska will assume a 20 to 25 percent stake in the entire project. TransCanada has agreed to pay the state’s costs for its share in the $22 billion gas processing facility and pipeline in exchange for a lower tariff for shipping the gas. That would represent a $5.5 billion investment, Balash said.
The state would pay as much as $5.75 billion for its share of the $23 billion liquefaction facility, which would be capable of shipping 18 million metric tons of LNG a year. The producers would pay the remaining portion of the $45 billion total project cost, Balash said.
Fund Project
The equity stake will allow Alaska to help fund the project and control transportation costs, he said. Alaska may sell part of its stake in the project to a number of LNG buyers, allowing it to reduce what it owes for the liquefaction facility, Balash said.
The state’s project carries a higher price tag than similar efforts to export gas from the Canadian coast that could be finished as soon as 2018.
Petroliam Nasional Bhd., the Malaysian state energy company, is proposing to spend as much as $15 billion on a terminal and pipeline to export gas from a site near Prince Rupert, British Columbia, along Canada’s Pacific Coast.
Countries including Canada, the U.S. and Mozambique are competing for a share of global gas demand set to increase almost 50 percent by 2035, according to the International Energy Agency.
