ConocoPhillips may help market Alaska LNG

OREANDA-NEWS. September 23, 2016. The state-run Alaska Gasline Development Corp (AGDC) and ConocoPhillips have agreed to explore jointly marketing the beleaguered Alaska LNG export project.

AGDC said the non-binding memorandum of understanding reached this week with ConocoPhillips is part of its "broader plan" to position the project to undertake detailed engineering, known as front-end engineering and design (FEED).

ConocoPhillips, ExxonMobil and BP said last month they would withdraw as equity partners in Alaska LNG at the end of the year because they do not want to fund FEED work slated to begin in 2017. They said the massive project, which has an estimated cost of \\$45bn-\\$65bn, would not be profitable with current low oil prices. Most long-term LNG contracts to Asia are indexed to oil prices because that continent does not have a liquid gas market.

AGDC and the producers have spent more than a combined \\$500mn on a preliminary engineering study for the project. The FEED work has an estimated cost of \\$2.3bn-\\$3.9bn.

The producers said they would back a plan for the state to take sole ownership of the project. They said if the state secures long-term export contracts, they would sign long-term capacity contracts on a planned 800-mile (1,287km) pipeline and sell their stranded North Slope gas to the project.

A joint venture with a major LNG player such as ConocoPhillips could signficantly help AGDC's marketing efforts. AGDG and ConocoPhillips hope to enlist the help of ExxonMobil and BP in marketing.

State ownership could make the project viable at oil prices of \\$45/barrel, according to a state-funded study prepared by consultancy Wood Mackenzie. But the state would have to accept tolling fees with an 8pc rate of return, rather than the industry standard rate of return of 12pc, and avoid paying income taxes on the project, the study said.

Alaska LNG was scheduled to come on line in 2025-26 with capacity of 20mn t/yr, equivalent to 2.5 Bcf/d (71mn m?/d) of gas, but the timeline is now unclear.