North Slope LNG update: work continues on state's future.

• Author: Bradner, Mike
• Position: OIL & GAS

Is a North Slope natural gas pipeline any closer to reality? Alaskans have hoped for years that the stranded gas resources of the slope--36 trillion cubic feet known now and it's believed 100 trillion cubic feet or more eventually--can be brought to market. After many false starts over four decades, a large gas pipeline and liquefied natural gas (LNG) project seems to be moving forward.

Finally, the gas producers--the companies that own lease on the slope--and the state appear to be working in tandem on a project. Additionally, the state is aligned with TransCanada Corporation, an experienced pipeline company. Having all the players together on one team is considered vital to the project because it creates an alignment where the risks, and rewards, are shared equitably, the producing companies have maintained.

There are bumps in the road, however. Governor Walker announced in February that he would "scale up" an alternative pipeline the state has worked on independently as a "Plan B." This is the Alaska Stand-Alone Pipeline, or ASAP, a smaller pipeline project intended to get gas to Alaska communities if the big project falters. The governor wants to increase the volume of gas, or "throughput," to improve its economics.

The North Slope producers, the state's partners in the big project, were unsure at first how to interpret the governor's announcement. They worried that Walker desires to develop a state-owned competing project. The governor has assured the companies, however, that he still supports the state's partnership in the large project and that the alternative state-backed ASAP is still just an option, a fallback for the state.

However, there are concerns that the scaling up of the state-backed pipeline risks confusion in the Asia market, where the companies and the state hope to sell North Slope gas. The confusion would be over which project the state really supports, the industry-led project in which the state is a 25 percent partner or the state-led ASAP where the state is majority owner. If this project moves forward, the governor has said he wants the state to control it, with at least 51 percent ownership.

Progress Continues

Meanwhile, work is continuing on the larger project and a great deal has been accomplished. The companies, with the state's participation, are currently engaged in the "pre-Front End Engineering and Design," or pre-FEED, stage of preliminary engineering. This is a further step than the conceptual design work that had been done to date, which was the basis for initial decisions like route selection and a choice of Nikiski, near Kenai, as the pipeline terminus and site of the large LNG plant. The initial cost estimate of $45 billion to $65 billion was also done during the concept-development stage, and a key goal of the pre-FEED project will be to refine and update the cost estimate.

There have been important steps made in regulatory proceedings. In 2014 the companies have filed for an application for an LNG export permit with the US Department of Energy, which the DOE has said it will expedite the application. This is an important step that will help in the LNG marketing efforts. The companies also made preliminary filings in 2014 with the Federal Energy Regulatory Commission (FERC) for a license...