Do We Really Need Another One of These?
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A liquefied natural gas (LNG) export plant in Alaska will cost up to $65 billion and take at least ten years to build. The project is designed to transport and liquefy natural gas from the North Slope of Alaska to export to customers in Asia.
ExxonMobil (NYSE: XOM), ConocoPhillips (NYSE: COP), BP (NYSE: BP) and TransCanada (NYSE: TRP) were asked by the Governor of Alaska to provide hard numbers on the prospective cost of building an LNG export facility and associated infrastructure.
The project will use natural gas from the North Slope of Alaska as feedstock, which contains an estimated 35 Tcf of reserves and 200 Tcf of undiscovered, technically recoverable resources.
The project will include the construction of three LNG trains with capacity between 15 million and 18 million metric tons per year. The consortium has evaluated 22 prospective sites on the southern coast of Alaska that are suitable to build this facility.
The project will also involve construction of an 800 mile pipeline to transport the natural gas across the state. The pipeline will have an estimated capacity between 3 billion to 3.5 billion cubic feet per day of natural gas. Carbon dioxide and other impurities will be removed from the natural gas at a processing facility expected to be built as part of the project.
It’s likely that this project will never be built, given its sheer size, cost, and complexity, as well as the expected difficulty in obtaining the required regulatory, environmental, and other approvals needed to start construction. The proposed pipeline will run across the entire north-south length of Alaska and will no doubt cross some sensitive environmental areas.
The consortium has not decided on a final site for the LNG facility but is looking at areas in Prince William Sound, the site of the Exxon Valdez oil spill in 1989. If the LNG plant is cited here, it should send the environmental movement into an apoplectic rage that will launch a golden age of resistance to any energy project.
Another impediment to the Alaskan LNG project is the necessity of obtaining long term agreements from buyers at a price level that makes the project economic. The major integrated oil and gas companies are obsessed with return on capital employed as a measure of performance and are unlikely to start construction unless the export capacity is contracted at an acceptable price.
The Alaskan LNG project must also compete with many other proposed facilities that will cost less, and if approved will be operational years or even decades before the facility proposed in Alaska.
Another proposed LNG export facility is being planned by Apache Corporation (NYSE: APA), EOG Resources and Encana on the western Coast of Canada in British Columbia. The Kitimat project will involve initial capacity of 5 million metric tons per year and start operations in 2015 or 2016.
Several large oil and gas companies estimate that a liquefied natural gas export plant and associated infrastructure in Alaska will cost as much as $65 billion. This staggering cost underscores the rising cost of oil and gas exploration and development.
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