Low Northeast Asian LNG prices notwithstanding, US LNG developers continue to push for capacity expansion. Whilst current brownfield developments on the Atlantic side are completing slated developments, large-scale proposals continue to be advanced – albeit slowly – along their regulatory paths, most recently in Alaska. Meanwhile, the prospects of Canadian LNG exports are subdued.
US LNG exporting capacity remains on a growth path as both Freeport LNG and Elba Island LNG received Federal Energy Regulatory Commission (FERC) authorisations to take into service a second dock and another gas liquefaction train, respectively. FERC is the federal agency responsible for authorising onshore LNG facilities for the export of natural gas in the United States.
Significant milestone for prospects of Alaskan LNG
Meanwhile, a proposed LNG project in Alaska by state-owned Alaska Gasline Development Corporation (AGDC) found approval in a FERC regulatory report (CP17-178-000) to the extent that it would provide economic benefits on Friday last week. In the final environmental impact statement (EIS), the agency highlights the potential for significant harm to the environment, but also concludes that most environmental impacts would be significantly reduced to acceptable levels under measures either proposed by the developer or recommended by authorities.
The completion of environmental impact studies is mandatory to obtain federal approval to build and operate a project.
Interests of oil majors and Alaskan state converge
AGDC has already signed on energy majors BP and Exxon Mobil to demonstrate the project’s viability. The corporation’s purpose is to maximise the value of Alaska’s gas for the state. According to the developer, Alaska LNG would cost $43 billion to build, an amount likely to increase considering recent experience with large-scale greenfield LNG developments.
Concurrently, the two oil majors and the Alaskan state share a strong interest in monetising otherwise stranded North Slope gas. BP and ExxonMobil are among the operators of Alaska’s North Slope oil and gas projects clustered along the shores of the Beaufort Sea in the Arctic Circle. Alaska LNG would be supplied with 75% of gas stemming from the Prudhoe Bay field and 25% from the Point Thomson field. Whilst oil has hitherto been the main focus of hydrocarbon production in Alaska, monetising associated gas is gaining in importance as overseas gas markets grow and the North Slope play ages. The Alaskan state, meanwhile, is keen to unlock an additional source of tax revenue stemming from the proposed development.
Developers seek LNG capacity in a league with Sabine Pass
Fully developed, Alaska LNG’s capacity is going to be around 20 million tonnes per annum (mtpa) from three liquefaction trains, which would put it in a league with Sabine Pass LNG, still the United States’ largest liquefaction plant. Cleaned gas would be transported by an 800-mile pipeline from North Slope to the town of Nikiski on the Kenai Peninsula in southern Alaska, where Alaska Gasline plans to build the liquefaction trains. The town is also host to the mothballed Kenai LNG plant.
Alaska is well positioned geographically but is it enough for project viability?
Although supplying buyers along the Pacific coasts with LNG from Alaska may seem a good idea at first due to direct sea routes that could cut shipping times by up to 50% compared to routes from the US Gulf, the project’s proposed costs are very high at around $2,150/tonne of nominal capacity. For comparison, the cost for installed capacity at Sabine Pass was roughly half that. Presumably the lion share will stem from the 800-mile pipeline. Whilst current low prices in Northeast Asia are not directly relevant to a project which, if built, would unlikely begin production before 2025, we estimate that Alaska LNG will need Asian LNG prices significantly and consistently above the $10/mmBtu mark to be economical.
US still has several other large-scale LNG project proposals, but their future is uncertain
Notably, Alaska LNG still has a long way to go for FERC approval and a final investment decision (FID). Other US LNG proposals – Port Arthur LNG, Gulf LNG Liquefaction, Eagle LNG Partners and Venture Global LNG – already have FERC approval yet remain without FID. Market appetite for another American LNG behemoth is currently waning. It remains to be seen whether any of these will be constructed as planned since a massive expansion in Qatar is likely to add consistent downward pressure on global LNG prices by around 2024.
Prospect of Canadian LNG exports received further blows
Previously, the idea of Alaskan LNG exports would have found support in similar developments in Canada. Here, the combined benefits of similarly short shipping distances to the Far East as well as low domestic gas prices (AECO hub-traded gas ended 2019 at $1.62/mmBtu) promise significant advantages over the competition down south.
However, the widely reported decision by Warren Buffett’s Berkshire Hathaway Inc not to invest C$4 billion in an LNG development by GNL Québec puts that project into peril. The project remains officially slated to start operations in 2025, taking gas from a connector to the TransCanada pipeline carrying gas to the Atlantic coast, but that timeline seems very uncertain now. The prospects of Canadian LNG exports thus received another hit after major projects on the country’s Pacific coast such as Aurora LNG, Grassy Point and Pacific Northwest LNG were cancelled in 2017, in part due to lacking pipeline infrastructure to the Canadian Pacific coast and runaway LNG capacity growth in neighbouring United States. Even the most promising Canadian LNG project – LNG Canada – is now facing delays due growing opposition against the pipeline that is supposed to supply the plant with gas.Previous:
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