State receives AK LNG work; land issue unresolved

  • By ELWOOD BREHMER
  • Wednesday, December 21, 2016 10:06pm
  • News

The State of Alaska is now halfway to officially leading the Alaska LNG Project after the Alaska Gasline Development Corp. board unanimously approved a resolution Wednesday afternoon authorizing the state corporation to take ownership of the $600 million worth of information gathered on the project to date.

The resolution also gives AGDC the ability to formally notify the Federal Energy Regulatory Commission, or FERC, that BP, ConocoPhillips and ExxonMobil will be withdrawing from the project’s application to the agency and the quasi-state agency will “carry on the project from there,” AGDC President Keith Meyer said.

Board chair Dave Cruz called it “another monumental day for AGDC,” as the action ostensibly gives the corporation free rein over the two-plus years of pre-front end engineering and design, or pre-FEED, work led by ExxonMobil that wrapped up late this year.

Most of the roughly $600 million spent on that work was put in by the producers, with the state contributing about 25 percent of the funding. However, the joint-venture agreement the project started under generally allowed for the parties remaining in the project if there was a change to the ownership structure to have access to pre-FEED information free of charge.

Earlier in the year Meyer said he hoped to have the project transition wrapped up by the end of the year and Wednesday’s action was a big step toward that goal.

The big issues that remain outstanding are agreements giving AGDC access to the 600-plus acres of land in Nikiski the producers purchased for the LNG plant and marine terminal, as well as access the project LNG export licenses held by the producers.

It is the general practice of FERC that AGDC must demonstrate access to the land before it can hold the export licenses.

“Those agreements will come next year,” Meyer said to the board.

Whether AGDC can work out a land access agreement with the producers or the state will have to directly buy the land from them remains to be seen. The producers have kept how much they spent on the parcels confidential.

Board member David Wight, recently appointed by Gov. Bill Walker and the former head of Alyeska Pipeline Service Co. expressed concern that the agreements for the pre-FEED information could hurt the state’s position in the land and license negotiations.

Other board members responded by saying the issue of negotiating leverage shouldn’t be discussed in the public meeting and would be best addressed in an executive session.

In a brief interview following the meeting Meyer said the years of pre-FEED work shifted the Alaska LNG Project cost estimate significantly — and in the right direction for the project proponents.

What was formerly a megaproject with a low-end cost estimate of $45 billion and an upper-end estimate of $65 billion is now a project with a cost where the “top end of the range is $45 billion,” Meyer said.

AGDC hopes the final cost can come down further through project financing arrangements that harness the state’s federal tax-exempt status among other things and Meyer is confident in the new figure.

“$600 million spent on a project gets you a pretty good cost estimate,” he said.

In the coming year AGDC will be focusing on its FERC license application for Alaska LNG, securing customers and in-turn the financing mechanisms that will be supported by customer contracts, Meyer added.

While the producers’ role in the future of the project isn’t clear, he said AGDC and ConocoPhillips continue to work on a joint venture to market the company’s and state’s shares of North Slope natural gas and if nothing more the three companies will hopefully be customers of the state’s project in some fashion.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

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