TransCanada Corp. will officially shift its attention to an Alaska LNG project, having received the state's blessing to no longer focus on the Alaska-Lower 48 pipeline alternative.
The state approved amendments, including modification of the project's focus and deferral of the required application date, to its agreement with the Alaska Pipeline Project parties to facilitate the continuing work toward commercializing Alaska North Slope gas, according to a May 2 letter from the Alaska Department of Natural Resources.
TransCanada said it has already started initial work, taking a preliminary look at routing and pipeline volumes, but Tony Palmer, vice president of Alaska development, said it was too early in the process to speak to any specifics. The company also will be preserving its work toward the pipeline that would have traversed Alberta, and customers will be able to choose between the two alternatives.
"We're pleased that the state has chosen to approve our request," Palmer said. "We'll get on with the work and hopefully see some results in the fall."
Now the companies involved, including ExxonMobil, ConocoPhillips Co. and BP plc, will need to conduct a complete public solicitation of interest in the LNG project by the end of 2012, while the state continues to reimburse up to 90% of the costs TransCanada incurs in the coming months for work on the export proposal.
The state does have a $500 million cap on the reimbursement it is prepared to offer, and Federal Coordinator Larry Persily estimates that the company has gone through approximately half of that sum since the project planning began. The remaining available funds will help TransCanada make a significant dent the new design process, but Persily noted that if after looking into the LNG option the companies decide against it, state funding would not likely cover a switch back to the pipeline plan. However, in the scope of a multibillion-dollar project, a few million dollars in design costs are not going to make or break the process, he said.
Alaska has been waiting a long time to commercialize its North Slope gas, Persily added, saying that the debate between pipeline and LNG projects has been ongoing since the 1970s. But a constantly shifting market and differing interests among producers, consumers and pipeline companies have held up development for decades.
"We just bounce around between the two," Persily said. "Hopefully this time we get it right. It's just hard when you're building such a long-term project and the market moves so quickly. That's always been the problem up there."
In late March, Alaska saw major gas producers come together in support of an LNG project, fulfilling Alaska Gov. Sean Parnell's request that they align with Alaska Pipeline Project parties to further the development of North Slope petroleum.
"This is the first time since [the 2007 Alaska Gasline Inducement Act] was enacted that the licensees and all three [Alaska North Slope] producers have been aligned on a gas commercialization project," the state noted in its letter to TransCanada.
The letter also acknowledged the unforeseen changing factors that went into the companies' shift away from a pipeline to the continental U.S., including the substantial increase in U.S. shale gas reserve estimates and the U.S. Energy Information Administration's projection that the country will become a net gas exporter.
What is different?
As the companies move ahead with their assessment of an LNG project, some of their past work will remain useful, according to Persily. Much of the field work on the pipeline route from the North Slope will still be useful, although the pipe will turn toward the Alaska tidewater region rather than toward Canada. The site selection and environmental impact assessment the companies have done for a North Slope gas treatment plant also will remain valid, even if the plant is a different size.
For TransCanada, specifically, Palmer said that more than 50% of what they have already done will carry over, including engineering work, cost estimation and environmental assessments. While the transition will mean the company has to shift its focus, Palmer said it would not be too challenging for his company.
But additional work remains. The FERC application process will need to include the liquefaction terminal, while the companies will need to focus on a facility's operations and safety rather than just the construction impacts from building a pipeline. Companies also will need to figure out the facility's volume, the possible location of a liquefaction plant, how big of a pipe to connect to it and an altered pipeline route.
"There are also different issues for residents in terms of a liquefaction terminal as opposed to a linear pipeline," Persily said. "Impacts from liquefaction are more visible, more ongoing."
Persily said his office will continue to work with the White House and relevant agencies to facilitate the project and help Alaskans understand the changing implications of an LNG project.
Sen. Lisa Murkowski, R-Alaska, emphasized her state's potential as a natural gas supplier to Japan earlier this week at a dinner with Japanese Prime Minister Yoshihiko Noda, according to a May 1 news release.
"Alaska's gas is the perfect fit to meet Japan's energy needs," Murkowski said. "An LNG line from the North Slope could deliver long-term, stable energy supplies to Japan at a reasonable price. Such a project would be a win-win, both in terms of energy security and environmental policy for Alaska and Japan."
The conversation followed a series of discussions Murkowski led last week in Washington, D.C., with members of Japan's Parliament, highlighting the benefits of Alaskan gas for Japan. The senator also urged President Barack Obama to raise the issue with Noda, and the White House confirmed May 1 that the leaders had discussed expanded LNG exports.
In further partnership with Japan, the U.S. Department of Energy, working with ConocoPhillips and the Japan Oil, Gas and Metals National Corp., announced May 2 that natural gas trapped in permafrost on the North Slope had been successfully extracted. The extraction was the first field test of methane hydrate production, which conceivably also could be applied along the continental shelf.
"While this is just the beginning, this research could potentially yield significant new supplies of natural gas," Energy Secretary Steven Chu said in a statement.
Supplying overseas, but what about in Alaska?
Alaska's LNG announcement comes on the heels of the state Legislature's failure to adopt a bill facilitating the development of an in-state "bullet line" that would bring North Slope gas to Alaskans. Championed by state Speaker of the House Mike Chenault, the bill was dropped entirely by the state Senate during a special session of the Legislature that ended April 30.
"It is unfortunate that the Senate has, again, refused to act on major legislation advancing the most pressing issues confronting Alaskans today," Chenault said in a statement. "Not only has the Senate denied Alaskans in-state gas at the earliest opportunity, but they have also killed the possibility of [the Alaska Gasline Development Corp.] taking a seat at the table as the producers and TransCanada talk about a large-diameter export pipeline."
The bill, which would have given additional funding and authority to the state-created AGDC, passed out of the House in March. Without Chenault's legislation, AGDC will now have $21 million in funding for the year and now has no plans to hold an open season in January 2013.
However, an LNG pipeline from the North Slope to the tidewater also would deliver gas to Fairbanks and communities in south-central Alaska, according to Murkowski's statement.
Copyright 2012 SNL Financial LC. All Rights Reserved.
(Originally published May 4, 2012, in SNL Daily Gas Report.)