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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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The Oil Majors Aiming To Save Alaska’s LNG Dreams

Less than two weeks after Alaska Gov. Michael Dunleavy  cast doubt over the $43 billion Alaska LNG project, two oil majors have resuscitated hope that the massive capex project could go forward after all.

The Alaska Gasline Development Corp. (AGDC)  said on late Friday that it had signed a collaboration agreement with oil majors BP and ExxonMobil to look for ways to help advance the state-owned company’s proposed project. “Our respective organizations share an interest in the successful commercialization of Alaska’s stranded North Slope natural gas,” AGDC Interim President Joe Dubler said in a statement. “Both BP and ExxonMobil possess world-class LNG expertise which may help AGDC responsibly advance this project with maximum efficiency for the benefit of Alaskans, and I welcome their collaboration.,” he added. The AGDC is the state-run company in charge of developing the Alaska LNG project.

The disclosure comes after considerable headwinds for the state’s LNG project proposal. Gov. Dunleavy, who took office in December, has been taking a different approach to the project that has been earmarked to send LNG cargoes to Asia-Pacific, a region that accounts for 72 percent of global LNG demand, with that amount projected to reach at least 75 percent amid more demand coming from China.

New AGDC focus

Dunleavy made changes to the AGDC board in January, also replacing pro-Alaska LNG project AGDC president Keith Meyer with Joe Dubler who is also taken a more cautious approach to the project and its financial feasibility. Dubler told legislators during a Feb. 27 Alaska Senate Finance subcommittee meeting that the quasi-state corporation holding the state’s dream of a large natural gas pipeline project is in the process of scaling back while evaluating the technical and commercial viability of the project. Dubler, who officially took the helm at AGDC on Feb. 1, emphasized that Gov. Dunleavy replaced four board members and hired him to “refocus the corporation.”

“If it is (viable) we’re going to solicit world-class partners for FEED, which is front-end engineering and design and completion of regulatory efforts,” Dubler said at the meeting. “If we do all of our work and we determine that the project does not look like it’s going to be viable we will wind the project down, close the corporation up and return all the current funds that remain to the General Fund,” he added.

Related: Blackout Shuts Down Venezuela’s Oil Exports

Both Gov. Dunleavy and Dubler’s tone is a sharp contrast to both Meyer and former Alaska Gov. Bill Walker, who pressed ahead with the project against seeming insurmountable odds, including the withdrawal in 2016 of three oil companies (BP, ExxonMobil and Conoco Phillips) that had been early partners in the project, leaving the AGDC as the remaining and sole partner. Meyer and Walker had also emphasized the state would only go forward with an LNG pipeline and export plan if it was economical, but there was never an indication the corporation would give up on finding a path forward for Alaska LNG if the current plan ultimately didn’t work.

Going forward

Both BP and ExxonMobil’s renewed interest in the project, just three years after they pulled out, shows that LNG markets have changed in three years. In 2016, LNG markets were awash in supply with that overhang projected to last until the mid-part of the next decade. Global oil prices, which long term LNG off-take agreements are still largely indexed against, were also plunging that year amid a corresponding supply overhang in global oil markets. From reaching more than $100/barrel in mid-2014, prices for both Brent crude futures and West Texas Intermediate (WTI) futures had dipped below the market damaging $30/barrel price point, bringing Saudi Arabia, OPEC, Russia, and U.S. shale oil producers to their knees.

Related: Blackout Shuts Down Venezuela’s Oil Exports

Now, however, forecasts for the end of the ongoing LNG supply overhang have changed from the mid-part of the next decade to around 2022 or 2023, possibly earlier depending on demand coming out of Asia. The biggest factor changing LNG supply and demand fundamentals continues to be China's increased use of the super-cooled fuel to help the country reach its government-mandated goal that gas makes up at least 10 percent of its energy mix by 2020 to help battle rampant air pollution, with further earmarks set for 2030. LNG demand growth is also coming from South Asia, namely India, Pakistan, and Bangladesh. Europe is also seeing LNG usage increase as some EU members make a pivot away from geopolitically charged Russian pipeline gas. LNG demand growth will also come from Thailand, the Philippines and Vietnam as these countries’ economies continue to expand and as their domestic natural gas reserves are depleted.

By Tim Daiss for Oilprice.com

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  • Bill Simpson on March 14 2019 said:
    Natural gas is the fuel of the future. They could make a lot of money by building another Alaska pipeline to get it out, because demand for natural gas will begin to explode in about 10 years. That demand will continually increase until the gas begins to run out, toward the end of the century. A decade after the pipeline opens, the profit will begin rolling in for decades to come. And the interest rate is now at a record low. Don't miss that opportunity to borrow. And inflation favors the debtor. What's not to like?
    They will need some heavy hitters like BP & Exxon to get this one done. Maybe the State could get creative with some kind of bond sales to raise money? Rich people are always looking for somewhere to park their millions.

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