Focus shifts to reducing costs, risks for Alaska LNG Project

  • Thursday, January 14, 2016 9:23pm
  • News

“Cost is everything.”

No longer a concept, nearly everything done on the Alaska LNG Project from here forward will be focused on moving the prospective project towards reality for the least cost, and risk, possible, ExxonMobil Senior Project Manager Steve Butt said Jan. 8.

Butt recapped the progress made over the last year on the $45 billion to $65 billion behemoth of an endeavor at the Alaska Industry Support Alliance’s annual Meet Alaska conference held in Anchorage.

Generally referred to as “the gasline,” he noted the project is much more than an 800-mile pipeline to transport liquefied natural gas from the North Slope to Cook Inlet.

More than half of the project’s mid-range estimated cost would be tied up in a $25 billion LNG plant and marine terminals near Nikiski, while the North Slope gas treatment plant and the pipeline infrastructure would each need $15 billion.

As currently designed, the project would export roughly 20 million tons of LNG per year and generate upwards of $3 billion per year to the State of Alaska.

The state is a 25 percent owner in the Alaska LNG Project with BP, ConocoPhillips, and ExxonMobil collectively comprising the other three-quarters of ownership.

The LNG export license for the project approved by the federal Department of Energy in 2014 and the Alaska Oil and Gas Conservation Commission’s approval to move North Slope natural gas last year were “huge milestones” for the project, Butt noted.

Historically, the gas that would be sold through the project has been pulled out of the ground and re-injected to maximize oil production of North Slope fields.

To date, the project has spent roughly $470 million, with $370 million of that coming since the pre front-end engineering and design stage, known as pre-FEED, began in June 2014, Butt said. He noted the scale of spending ramp-up if the project continues to move forward into the front-end engineering and design, or FEED, and ultimately construction, emphasizing the importance of driving costs down in a challenging market.

“In concept, the project spent $30 million a year; that was our cost. In pre-FEED, we’re spending $30 million a month. In FEED, we will spend $30 million a week and in execution we will spend $30 million a day,” Butt said.

In an earlier presentation, ConocoPhillips Technology and Projects Executive Vice President Al Hirshberg said the worldwide LNG market forecast is for about 200 million tons per annum of new demand in 10 years — when Alaska LNG would begin production. However, about 140 million tons per year has “already been spoken for” through other projects that are further along, he said.

“We have to admit the current market does create some headwinds on the project; that’s just the fact on the ground,” Hirshberg said.

Butt described the market a different way, noting the “gated” process of concept, pre-FEED, FEED, final investment decision and then construction helps increase dedicated resources as investment risk decreases.

“It’s not Copper River salmon; nobody pays extra for LNG. So it’s all about cost of supply,” Butt said.

Simply put, that cost of supply is about $50 billion to build the project divided by the 32 trillion cubic feet of natural gas it hopes to process, export and sell.

By the end of the year, the Alaska LNG Project should have filed its environmental impact statement application with the Federal Energy Regulatory Commission, the lead federal agency for the project. As part of that process the project will complete the second draft of its 13 resource reports; Butt said the first draft was roughly 10,000 pages.

On the technical side, hydraulic modeling for the pipeline is 98 percent complete, according to Butt. The last 2 percent, he said, is knowing where Alaska Gasline Development Corp., the state’s representatives, wants the “offtake” points for in-state gas consumption along with how much project gas the state will use.

Stress testing on the 42-inch pipe originally planned for the project just wrapped up and went well, he said. The pipe was able to withstand 8 million foot-pounds in a compression test without failing, which is critical for a buried pipeline.

“The ground will move in Fairbanks. It’ll get cold in the winter; it’ll get hot in the summer; it’ll move all over; it’ll exert its load but the pipe will be fine,” Butt said.

Sections of 48-inch pipe were ordered in August and should arrive soon be tested similarly in February, he said.

A pipeline size decision should come by early April, according to Butt.

Gov. Bill Walker has said he wants a 48-inch pipeline to add capacity to the project, which could incentivize additional gas exploration and production on the Slope or elsewhere along the project corridor.

Evaluating the feasibility of a 48-inch pipeline is pegged at $30 million, based on 2016 project budget documents.

Walker has also said he hopes to have critical fiscal agreements between the partners and the state in place for the Legislature to review before the end of the legislative session in late April. Corralling an adequate workforce for the project will be another in the list of hurdles for the AK LNG Project.

“The biggest challenge for us is going to be on craft labor,” Butt said.

The project is estimating it will need upwards of 8,500 construction workers during the peak work period of 2021 and 2022.

“What we’re hoping is that as the market shifts we’ll be able to have a better opportunity to get labor and the materials,” he said. “We’ll see a softening in the prices of the things we need like steel and other skills that we’ll need to acquire.”

Butt said there is still a lot of competition for that labor, particularly in the Gulf of Mexico, as LNG buyers ramp up work in a favorable market for them.

“Marrying” Alaska-specific engineering and construction expertise with global LNG project experience will also be important, he noted, as the complexity and scale of the Alaska LNG Project are virtually unmatched and it will be done in a very unique environment.

The project has contracted with over 100 geotechnical firms over the past year and it should have formal contracting strategy in place by the latter half of 2016 as work continues to ramp up, Butt added.

Elwood Brehmer can be reached at

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