ConocoPhillips LNG plant sale will not immediately impact local economy

Editor’s note: This story has been changed to correct the spelling of Kenai Peninsula Borough Mayor’s special assistant for oil and gas Larry Persily’s name, and to correct a miscalculation of the ConnocPhillips LNG plant’s value in Kenai Peninsula Borough property taxes.

Amid a saturated liquefied natural gas, or LNG, market and falling prices, ConocoPhillips announced Thursday that its Nikiski LNG terminal is for sale. Officials say the local economy might not be greatly impacted in the short term, though.

The natural gas liquefaction facility and terminal has been exporting LNG, mostly to a pair of Japanese utilities, since 1969. The company’s announcement marks its latest withdrawal from the Cook Inlet natural gas market. Whatever effects the plant’s sale may have on the local economy will not be immediate, according to Larry Persily, the Kenai Peninsula Borough Mayor’s special assistant for oil and gas, who said present employment and taxation at the plant won’t be affected as long as it remains open.

Though the plant was inactive for half of 2015 and has been for all of this year, Persily said it has between 35 and 40 employees and contractors working to maintain it, who would likely remain employed if it sold. As of press time Saturday, a ConocoPhillips spokesperson hadn’t returned a request for comment.

The facility’s tax value to the borough will also be unaffected, Persily said. Persily wrote in an email that he calculated the taxable value of the land around the plant to be about $60 million, based on the Kenai Peninsula Burough’s land database.

Persily said it is unlikely that the plant could be a useful purchase for the Alaska LNG Project, which had planned a similar but larger LNG liquefaction facility and export terminal south of the ConocoPhillips plant site to receive gas piped down from the North Slope. ConocoPhillips helped plan the AK LNG project with Exxon Mobil, BP, and the state of Alaska, though the future role of the non-state partners is uncertain.

“The ConocoPhillips plant is about one twentieth the capacity of what Exxon, BP and Conoco looked at to handle North Slope gas, which is a huge volume,” Persily said. “This would not meet the needs of handling and selling North Slope gas. It’s way too small, and 50 years old. So even though it’s been kept in good condition, I’m not sure expanding it to 20 times its size is very do-able.”

Alaska House Representative Mike Chenault (R-Nikiski) said the drop in global LNG prices that may have prompted the plant’s offer for sale causes “concern not only for the ConocoPhillips LNG plant, but for any opportunity to move forward on a bigger AK LNG or (Alaska Gasline Development Corporation) project.”

“I think it just shows how tough the market is for LNG right now, and we need to be very careful how we proceed forward and the money that we spend to put forth the AGDC project right now,” Chenault said.

Asked if he planned any legislative measures to incentivize future investment in the plant, Chenault said attracting buyers isn’t the legislature’s job, but didn’t rule out action.

“It’s a matter of looking at it and seeing, ‘Are there opportunities out there the legislature can help private industry?’” Chenault said. “And if it’s something we could do, certainly I would push for it.”

Taking a broader view, Chenault said the prospective sale is consistent with a pattern of oil and gas development in which assets established by larger global companies eventually pass into the hands of smaller, newer ones.

“Most oil and gas fields go through these stages where the majors come in and start developing a field, and as the field starts to dry up, you see smaller independents start to move in with a smaller overhead,” Chenault said. “That’s the normal progression of an oil or gas field.”

ConocoPhillips’ announcement of the sale states that the company is focusing on its North Slope operations. In July 2015, ConocoPhillips announced plans to sell its two Cook Inlet leases, the North Cook Inlet gas field and its share of the Beluga River gas field, which it shared with Hilcorp Energy.

In February 2016, the Anchorage-based utilities Municipal Light and Power and Chugach Electric Association bought ConocoPhilips’ portion of the Beluga River field, and in October 2016 Hilcorp bought the North Cook Inlet field. Worldwide, ConocoPhillips is looking to cut its costs. In a Nov. 10, 2016 press release, the company announced a $5 billion-$8 billion divestiture program, which the release stated “will focus primarily on North American natural gas.”

Ben Boetgger can be reached at ben.boettger@peninsulaclarion.com.

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