AGIA a starting point

Update: Post luncheon comments from Mulva, Dudley more upbeat on LNG

Kay Cashman

Petroleum News

Two of the CEOs of Alaska’s three largest gas owners had more to say after their Jan. 5 luncheon with the state’s movers and shakers than they did in their luncheon speeches; one about alignment under the Alaska Gasline Inducement Act, or AGIA, and both about the strength of the Asian market for liquefied natural gas. (See Petroleum News report written immediately following the luncheon and published in the Jan. 8 edition at http://bit.ly/wssYjV.)

In comments to reporters after the luncheon BP CEO Bob Dudley acknowledged AGIA as the existing state framework for a gas pipeline project and a place to “start,” but to move a project forward, be it LNG export to Asia from an in-state line or natural gas to U.S. markets via a line through Canada, AGIA would need some changes, he said.

Dudley was not specific what changes would be needed to achieve alignment among the three northern Alaska gas owners and the state of Alaska, but BP, ConocoPhillips, ExxonMobil and AGIA license holder TransCanada Alaska have all said at one time or the other that the gas in the fields controlled by the three companies, Prudhoe Bay and Point Thomson, would be needed to make a pipeline project economically viable.

TC Alaska has been working with ExxonMobil to advance the state-licensed line, the Alaska Pipeline Project, focusing on a route through Canada to U.S. markets. AGIA also allows for a line to tidewater in Alaska.

A competing project of BP and ConocoPhillips that folded last year also took the gas pipeline through Canada.

In the brief speeches made by the three CEOs and Gov. Sean Parnell at the luncheon, it was clear that an LNG export option was being considered by all parties, but the CEOs said very little about it; the governor said the most. Basically, the combined message was this: The three gas owners are in early discussions on an LNG export plan but until further notice a line through Canada was still being pursued by TC Alaska and partner ExxonMobil.

TC Alaska has always said the gas producers would determine the route of the line. TransCanada Vice President Tony Palmer was in the audience at the Jan. 5 luncheon, but did not give a speech.

After the luncheon BP’s Dudley and ConocoPhillips CEO Jim Mulva had much more positive things to say about LNG export to Asia, which has become more attractive since the shale gas boom in the contiguous U.S. states depressed natural gas prices in North America.

“My sense is liquefying the gas and marketing the gas is most economic, given where the resources are,” Dudley told reporters.”

With current economics and “given what has happened with shale gas in the Lower 48 and the high price of gas in Asia, that looks like the most economic way,” he said.

Dudley’s official statement through BP’s public relations office after the Jan. 5 luncheon was, “Alaska gas is a world-class resource and is important to BP. We support Gov. Parnell’s vision for Alaska oil and gas development and believe that an LNG option to deliver Alaska gas to global markets could be competitive. Successful delivery at this scale requires all interested parties to work together.”

Mulva was even more positive about exporting LNG: “What we see is a strong, good Asian Pacific market and that’s where we think Alaska gas should go. … It’s certainly better than any alternative.”

The three CEOs, including ExxonMobil’s Rex Tillerson, were in Alaska at the invitation of the governor; an invitation that was extended on Oct. 4. (See link in aforementioned PN article.)

Parnell on LNG, Point Thomson

“Certainly Point Thomson was part of that meeting … and the briefing that followed,” Parnell said. But it was “very clear at the end” of the meeting that the “litigation was not resolved.”

“Exxon as operator still has a ways to go with its partners,” the governor said.

A draft settlement crafted by the state and Point Thomson operator ExxonMobil about a year ago has been criticized in court documents by ExxonMobil’s partners in the dissolved unit. The largest Point Thomson leaseholders are ExxonMobil, BP and Chevron.

In regard to the visit to Alaska on Jan. 5 by the CEOs of Alaska’s largest gas owners, BP’s Bob Dudley, ConocoPhillips’ Jim Mulva and ExxonMobil’s Rex Tillerson, Parnell said he was pleased by the receptivity of the companies to take a serious look at LNG and their apparent willingness to work on aligning their interests.

The “general agreement” between all the parties was that the “market has shifted in the last four years,” favoring the liquefied natural gas market in Asia versus selling gas to U.S. markets, he said. “The economics have changed,” although the three companies “don’t (yet) know what that means” for an Alaska gas line project in the long-term.

“I like to see them working together … considering … an LNG line from the North Slope to tidewater.”

There are two things he wants to see from the companies, Parnell said:

1. Benchmarks for real progress, and;

2. Alignment.

—Kay Cashman