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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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Alaska LNG Is Finally Clear For Takeoff

Alaska Gov. Bill Walker remained upbeat, even optimistic over his state’s massive liquefied natural gas LNG export project proposal, Alaska LNG, for years, even as global oil and gas prices tanked, reaching multi-year lows, even as all of its original partners, including ExxonMobil, ConocoPhillips, and BP pulled out – leaving the state, under the umbrella of the Alaska Gasline Development Corp. (AGDC), being the sole project partner.

Walker’s goal of replacing depleted state government coffers, amid dwindling oil production due to maturing fields and corresponding and politically charged budget deficits, saw the state’s highest executive fly to Asia and notably China several times to drum up support for the beleaguered project.

Walker was also part of the entourage that accompanied President Trump on his trade mission to Beijing in November, while he secured a non-binding preliminary agreement from Chinese state-owned oil major Sinopec Group and Bank of China to invest in Alaska LNG. However, even with the agreement in hand, there was no guarantee that the deal would be finalized.

After the trip, U.S. Secretary of Commerce Wilbur Ross announced that Chinese firms had inked around US$250 billion in trade deals with U.S. companies – which admittedly looked small given the temporary nature of many of the deals and the still massive and growing trade deficit between the two countries that has now brought these economic powerhouses to the threshold of a full-fledged trade war.

Important hurdle cleared

Now however, Walker says that an important hurdle for investment in the US$45-US$65 billion Alaska LNG project has been cleared. The Federal Energy Regulatory Commission (FERC) on Monday set a timeline for the project to receive its final environmental impact statement by December 2019.

Related: UK Looks To Ditch Russian Gas After Spy Scandal

Walker, on cue as the state’s most ardent promulgator of its energy assets, said in a statement late Tuesday that the FERC timeline sets the project on a firm path toward completion. "This is a major step forward that establishes clarity and predictability in the federal permitting process, which is critical for investors," he said.

The problem to date for Walker and the project had been attracting investors. Unlike its LNG export project counter parts in the Lower 48, the Alaska LNG project’s CAPEX is seen as prohibitive, one of the reasons other project partners pulled out as well as lower oil and gas prices.

The cost of building the project is also at a decided disadvantage from the start due to higher labor costs in the state – the same quandary that saw nearly all of Australia’s massive CAPEX LNG projects face troubling, even embarrassing construction delays, cost over runs and massive budget blow outs.

Moreover, Alaska LNG also needs accompanying infrastructure to become operational, including a cost intensive 800-mile, 42-inch natural gas pipeline to be built from the North Slope to Nikiski, on the Kenai Peninsula, where a large gas liquefaction plant would be built. The project also involves a large gas treatment plant built on the North Slope to treat the raw gas before it’s shipped by pipeline.

Alaska LNG pivot?

Yet, with the FERC environmental deadline now set, which allows a construction time-table to be devised, and with possible Chinese project partners lined up, it seems that the Alaska LNG project may actually become a reality.

AGDC president Keith Meyer said earlier this month that the project still hopes to finalize LNG purchase agreements and financing by December with Sinopec and Bank of China that would cover three quarters of the project’s annual LNG production, or 15 million tons per year (mtpa). China Investment Corp., the country’s sovereign wealth fund, is also considering making an equity investment. Related: Heavy Sweet Crude Is Heading For A Supply Crisis

Talks are also underway with Tokyo Gas, Korea Gas Corp. (Kogas) and Petro-Vietnam, all which have signed preliminary agreements covering negotiations, as well as others, on the remaining 25 percent of capacity in Alaska LNG.

Given China’s exponential natural gas demand trajectory as the country turns from dirtier burning coal to cleaner burning natural gas as part of its fuel mix needed for power generation and also industrial usage; as well as a newly developing market for LNG in Southeast Asia (led by Thailand, the Philippines and Vietnam) as well as legacy LNG importers, Japan and Taiwan, Alaska LNG has a ready market for its gas.

It’s a possibility unthinkable just a year or two ago as state lawmakers on both sides of the isle called for its demise. Now, the project’s strongest proponent through those darks days, Bill Walker, may soon be able to take a bow.

By Tim Daiss for OIlprice.com

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