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Legislators hear AGDC update; Glenfarne, mil rate, RIV issues
Kristen Nelson Petroleum News
The Alaska LNG Project is stirring to life and raising questions from state legislators for the Alaska Gasline Development Corp., the state corporation heading the project.
With the state's historic spending for various plans to move North Slope natural gas south estimated at some $1.1 billion and the budget already stretched, legislators would like to see the project happen but fear the potential of another expensive failure.
Projected shortages of natural gas in Southcentral Alaska triggered AGDC to propose phasing the Alaska LNG Project -- starting with the pipeline and beginning with enough natural gas to meet Southcentral needs. Estimated at some $11 billion, the pipeline would be the first part of the $44 billion project.
With that change, AGDC began negotiations with a proposed project developer, Glenfarne Energy Transitions, to act as what AGDC describes as a quarterback for the project, not just for phase one but for the entire project.
Gas for phase one of the project would come from Great Bear Pantheon, which is developing gas which could meet the needs of utilities without conditioning.
At the southern end of the project, in phase one the pipeline wouldn't cross under Cook Inlet, as gas deliveries would be into an Enstar line on the west side of the inlet. The liquefied natural gas facility at Nikiski would also be deferred to phase two of the project.
Issues raised AGDC President Frank Richards told legislators in committee meetings in early February that investors like the phased approach because the 800-plus mile pipeline is viewed as the riskiest part of the project.
The phased approach was a response to impending natural gas shortages in Southcentral.
The study by Wood Mackenzie last year which evaluated whether North Slope gas from a phase one project would be competitive with the most likely alternative of imported LNG found the pipeline gas, even at an initial rate of 180 million to 200 million cubic feet per day would be competitive.
That comparison, however, included a property tax mil rate of 2 mils. If taxing jurisdictions insisted on the full allowable 20-mil rate, that would raise the cost of the gas to users in Southcentral, an increase which AGDC characterized as Alaskans taxing Alaskans. Legislators said the mil rate was an issue that would need to be resolved.
Another outstanding issue raised by legislators was whether the state would take its royalty share of the gas in-value or in-kind. Richards said gas owners preferred in-value -- they sell the state's gas along with their own and pay the state its share -- because of the issues that have risen with valuing the state's crude oil when that is taken in-kind.
Glenfarne Glenfarne was also an issue raised by legislators who wanted to know who the company was, if it was capable of doing the project and how AGDC connected with it.
Richards said AGDC had talked widely with companies who appeared capable of heading up the project and had encountered Glenfarne in this process. It was at last year's CERA Week, however, that a serious connection was made, described by Richards as an introduction from a high level of Exxon to a high level of Glenfarne.
Glenfarne's ability to handle this size of project was questioned, along with its lack of Arctic experience. Richards said Glenfarne would head up the project, bringing in large companies including those with Arctic experience.
He also said the week of Feb. 10 that Glenfarne representatives would be in Juneau that week to meet with legislators.
AIDEA and the backstop AGDC is in the process of negotiating a deal with Glenfarne whereby that company would takeover the 75% of the project which the state acquired from the producers when they stepped out of the project.
AGDC created 8 Star Alaska as the project company, with three subsidiary 8 Star companies, one each for the conditioning plant, the pipeline and the LNG facility. AGDC is selling 75% equity ownership of 8 Star and retaining a 25% carried interest. The state will have the choice of whether to retain the 25% equity ownership.
In the agreement AGDC is negotiating with Glenfarne, Glenfarne is asking for backstop for the up to $50 million estimated to get to final investment decision on the phase one pipeline -- the backstop would cover Glenfarne's cost if it determines not to go ahead with a final investment decision.
The Alaska Industrial Development and Export Agency board voted to provide the backstop and the amount appeared in the budget. Legislators questioned why AIDEA requested an appropriation for the monies when it has its own assets. The appropriation request was ultimately withdrawn.
AIDEA Executive Director Randy Ruaro told legislators the agency determined it could issue a corporate guarantee whereby funds to meet the up to $50 million were held within the agency backed by its own assets thus eliminating the need for the $50 million appropriation.
--KRISTEN NELSON
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