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Wood Mackenzie details economics of phase 1 gas pipeline vs imports
Kristen Nelson Petroleum News
Intent language in the state operating budget passed last spring asked for a third-party analysis from the Alaska Gasline Development Corp. of its proposed phased approach for the Alaska LNG project by Dec. 20, House Resources Committee Chair Tom McKay said at a Nov. 19 special meeting of House Resources.
The language in the bill specifies that "if analysis shows a positive economic value to the state, all parties would work toward Front End Engineering and Design for Phase I of a pipeline project."
Wood Mackenzie has now presented that report, which does show positive economic value.
Wood Mackenzie's Costa Swift, vice president in upstream carbon management team based in Houston and Akari Takiguchi, a managing consultant for the gas and energy team, presented the analysis.
The focus was natural gas for Southcentral, and Wood Mackenzie noted the declining Cook Inlet gas supply, with only a 9% success rate at the 34 exploration wells drilled in the basin over the last 15 years, resulting in lack of a secure and affordable supply leading to declining gas demand, notably closure of the fertilizer plant in 2007 and mothballing of the Kenai LNG plant in 2017.
The pipeline alternative Wood Mackenzie compared importing LNG with building phase 1 of the Alaska LNG project -- just the pipeline -- to bring natural gas south.
Building the pipeline would result in increased demand from Fairbanks, with increased demand from the Nikiski oil refinery and from additional industrial applications.
The baseload cost for a million British thermal units of gas would be $12.80, dropping gradually as more demand is added, first to $11.20 and then to $8.97 with more industrial demand resulting from the dependable resources. The big drop, of course, would come when the Alaska LNG project was completed and began exporting LNG, with the export volumes supporting a delivered cost of $2.23 to Alaskans.
The cost in Fairbanks would be higher as there would be an additional tariff for the spur line into that Interior city.
First gas is assumed in 2031.
Imported LNG alternative Wood Mackenzie looked at four cost components for imported LNG: cost of the molecules; shipping; regasification; and onshore reception of the gas. Onshore reception was not calculated because of unknown variables. Wood Mackenzie said that based on other onshore sites, that cost could range from $50 million to $500 million.
Molecule cost would vary based on contractual terms, but Wood Mackenzie estimated costs ranging from $10.21 to $13.72 per million Btu, without the unknown onshore reception cost.
Economic impacts Wood Mackenzie then looked at the economic impacts for the state of the alternatives, finding the impact of Alaska LNG Phase 1 to be seven to 10 times larger than that of LNG imports, based on construction, lifetime operations, multipliers and the potential savings with access to low-cost gas.
Another downside to imported LNG is the lack of upside demand for gas outside of the baseload.
In addition to increased gas demand generated by the pipeline, that project would also generate government income from corporate taxes and income from monetization of upstream gas.
Jobs along would be four times the number for construction and 4.6 times the number for operation for a pipeline over imported LNG.
The time to first gas for the pipeline is estimated at 2031, while time for LNG imports is put at 3-4 years after the final investment decision, but with the caveat that an LNG import project has not submitted any major applications.
AGDC: What's next Frank Richards, president of the Alaska Gasline Development Corp., provided a timeline of work needed to secure first gas from Phase 1 of the Alaska Natural Gas Pipeline in 2031.
The third-party verification of phase 1 economics was completed.
Next on the list was executing a FEED backstop agreement with a pipeline operator.
Richards said that for a pipeline operator to take on and execute the FEED phase, they needed surety that if the project didn't go forward, they would be repaid for the FEED cost -- up to $150 million.
Funding the FEED backstop requires $50 million, he said.
Meanwhile, work has not stopped on advancing the full Alaska LNG project. AGDC has been working to raise capital, $150 million, as well as continuing to talk to LNG developers, financiers and countries about the opportunity in Alaska LNG.
Chairman McKay asked if AGDC could wait until the next legislative session for the $50 million.
Richards said the sooner AGDC has the $50 million, the sooner it can start engineering.
Once the pipeline operator funds and undertakes FEED, it will prepare a final cost estimate and construction contracts.
The next step is agreements with Alaska utilities for long-term gas supply, then raising debt and equity financing followed by a final investment decision and the start of construction. For first gas in 2031, construction would start in 2027.
--KRISTEN NELSON
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