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Viable NS gasline?
Wood Mackenzie says gas could be delivered to Southcentral at competitive price
Alan Bailey for Petroleum News
In a new report to the Alaska Gasline Development Corporation consulting firm Wood Mackenzie has presented data indicating that a natural gas pipeline from the North Slope could deliver gas to the Cook Inlet region at a price that is competitive with imported liquefied natural gas. However, the gas supply would not begin until a few years after local Cook Inlet supplies start to run short.
Based on current levels of exploration and development, Cook Inlet gas supplies are projected to start running below gas demand levels around 2028. Natural gas is the primary fuel used for generating electricity and heating buildings in Southcentral Alaska. But Cook inlet gas prices are expected to continue to rise in response to a pending gap between demand and supply levels. Relying on additional Cook Inlet production is not considered a viable option to meet long-term demand, Wood Mackenzie says.
The Wood Mackenzie analysis assumes that gas delivered through the proposed pipeline, in addition to meeting the needs of Southcentral utilities, could supply gas to Fairbanks and potentially be used for industrial applications in Southcentral, including gas supplies for the Nikiski oil refinery.
Initial cost of $10.8B The report says that the estimated capital cost of phase 1 of a North Slope gasline is $10.8 billion. Preparation for construction and the actual construction could potentially begin in 2026 and be completed in 2031.
Feed gas would come from fields developed by Great Bear Pantheon near the Dalton Highway to the south of Prudhoe Bay, with a North Slope price of $1 per million btus, escalated for inflation at 2% per year. The gas would be delivered to Southcentral at an initial price of $12.80 per million btus, taking into account a pipeline tariff that includes a 10% return on investment.
The report also considers three other scenarios in which gas demand would rise, initially as a consequence of increased industrial gas demand in Southcentral and ultimately from the export of Alaska LNG from the state. Industrial applications could potentially include restarting a fertilizer plant on the Kenai Peninsula, building an ammonia plant or constructing a data center, the report suggests.
Full development of the pipeline system, including the capability to export LNG, would raise the development cost to $14.3 billion.
Initial increased industrial demand could reduce the delivered cost to $11.20 per million btus. But, should the pipeline ultimately be used for the bulk export of Alaska LNG, the delivered cost of the gas could fall as low as $2.23 per million btus, the report says.
However, the delivered cost of the gas is sensitive to a number of factors, in particular the possibility of a federal loan guarantee and the property tax rate for the pipeline.
Uncertainties around imports By comparison, the import of LNG into Southcentral Alaska is subject to a number of uncertainties, in particular the purchase cost of the LNG, LNG shipping arrangements, the cost of regasifying the LNG and the cost of the onshore infrastructure that would be required to handle the imported gas. The most likely LNG pricing arrangements would involve a Japan-Korea benchmark price, or a formula linked to the price of oil.
However, these pricing arrangements would probably require long term supply deals, the report says.
LNG shipping costs would obviously depend on the source of the LNG, although Alaska's easy access to the Pacific Ocean should be beneficial. And Wood Mackenzie estimates that the cost of regasification would be probably lie in the range of $1 to $1.5 per mmbtu, based on the volumes of gas likely to be required. However, with uncertainty over where a regasification plant would be located, the cost of the plant has yet to be estimated, the report says.
Wood Mackenzie estimates that the total cost of gas imported as LNG would lie in the range of $10.21 to $13.72 per mmbtu. That price looks similar to that of gas delivered by pipeline from the North Slope.
However, the LNG import option does not include the potential to significantly reduce the cost of the North Slope gas as a consequence of possibilities such as increased industrial demand in Southcentral and the export of Alaska LNG.
Essentially, although the North Slope pipeline option involves a higher capital expenditure and later first gas deliveries than the LNG import option, the pipeline option offers the possibility of lower gas pricing as a consequence of increased gas demand, the creation of substantial numbers of jobs in Alaska, and the possibility of a full Alaska LNG export project, the report concludes.
Other gas supply issues Although the report includes the delivery of gas to Fairbanks within the economics of the gas pipeline option, Fairbanks utility Interior Gas Utility has arranged a North Slope gas supply, starting at the beginning of 2025. IGU has 20-year contracts with Hilcorp Alaska and Harvest Midstream for the supply of LNG from an LNG plant that Harvest is constructing on the Slope.
Also, there is considerable interest in the expansion of power generation from renewable resources such as wind and solar in the Alaska Railbelt, a trend that could presumably reduce dependency on natural gas in the Railbelt electricity industry. Meanwhile, the Railbelt utilities are investigating the import of LNG, at least in the short term, to address the pending shortages of Cook Inlet gas.
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