Thursday, October 4, 2012

Peace and LNG in Alaska?

After years of competition and millions of dollars spent on economically unfeasible pipeline proposals, the principal producers of Alaskan natural gas seem to have come to an agreement to build an LNG export facility connected to a natural gas pipeline from the North Slope.  This project would be built in lieu of the infamous gas pipeline from the North Slope, through Canada to U.S. markets, spurred by the Alaska Gasline Inducement Act from the Palin administration.  While a good idea at the time, it quickly was rendered unfeasible by the advent of shale gas.

While there are many specifics to work out - including pipeline route, location of LNG facility, permits and a true market feasibility test - the various warring parties have now agreed in principle to build $45 to $65 billion worth of export infrastructure in a project that could take ten years to deliver.  Previously, Exxon and TransCanada won the rights for the AGIA pipeline, while BP and ConocoPhillips pushed another pipeline alternative.

While a better alternative than the Canadian pipeline, it is no done deal.  There are many headwinds, including potential regulatory push-back and the possibility that the market will not support the project.  As developers of the proposed Kitimat export facility in BC have found out, the deals struck by Cheniere Energy for its proposed export facility in south Louisiana have poisoned the price waters by tying the price of its gas to Henry Hub, which has created an expectation among buyers that other gas sources in North America will be relatively cheap.  But this is a vital project for Alaska given the fact that its vast resource of natural gas is otherwise stranded.

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