Alaska LNG to seek private funding

The massive state-owned Alaska LNG export project is running out of money and will seek private investment to complete its permitting process, project officials told Argus today.

The Alaska legislature allocated $400mn to continue permitting and marketing the project after the state-owned Alaska Gasline Development Corp (AGDC) took sole ownership of it in early 2017. Most of those funds have been spent and the remainder will likely run out in mid-2019, AGDC vice president of commercial operations Lieza Wilcox said on the sidelines of the World Gas Conference in Washington.

Alaska governor Bill Walker does not plan to ask the legislatre for additional Alaska LNG funding, his office told Argustoday.

To complete the expensive permitting process AGDC has hired investment bank Goldman Sachs to organize a private equity offering to raise an additional $600mn-$800mn, Wilcox said.

Funding construction of the $43bn project would require raising an additional $11bn in equity, with the rest of the cost to be financed, Wilcox said. AGDC is targeting early 2020 for a funding decision to meet planned start-up dates of 2024-25 for various phases.

The equity offer for $600mn-$800mn likely will be made this year, but a date has not been set. The state's ownership stake will be diluted if private equity is raised, but the state also will have the opportunity to participate in that round.

It is yet not clear how the state's shareholding might change based on what it or private entities may contribute. That is one of the issues that will be determined with the assistance of Goldman Sachs before the offering is made.

The three state-owned Asian energy companies that last year agreed to cooperate in Alaska LNG have not contributed any funds because the deals are non-binding, Wilcox said. Those potential partners are China's Sinopec, South Korea's Korea Gas and Vietnam's PV Gas. Sinopec would be entitled to 75pc of Alaska's LNG output if the conditions of its preliminary agreement are satisfied.

The planned Alaska terminal in Nikiski, on the state's southern coast, would have capacity of 20mn t/yr, equivalent to 2.5 Bcf/d of gas.

A major reason Alaska LNG would be so expensive is that it would require an 800-mile (1,290km), 3.3 Bcf/d pipeline to transport North Slope gas across the state. The terminal would comprise 50pc of the total cost, while the pipeline and gas processing plant would each account for 25pc.

Alaska LNG would offer a significantly lower shipping cost to important Asian markets than projects in the contiguous US. It also is touting the potential to provide feed gas at a stable low cost, as most of the natural gas needed for the project is already being produced as associated gas in the Prudhoe Bay oil fields. About 8 Bcf/d of gas is currently injected back into the field because there is no market for it and to maintain pressure on oil wells.

Prudhoe associated gas likely would provide about 75pc of the gas needed by AGDC, Wilcox said. The rest of the gas would come from the Point Thomson unit, which also is already producing significant associated gas, she said.

The state of Alaska owns its hydrocarbon resources and sells exploration and development leases. ExxonMobil, BP and ConocoPhillips own most of the gas leases in the North Slope and initially developed Alaska LNG when oil prices were high, which in turn made oil-linked Asian LNG prices high. They pulled out of the project in late 2016 because it was too expensive to compete in a low oil-priced environment and declining LNG prices.

AGDC plans to charge LNG customers a low gas feed charge and earn a utility rate of return, but so far only BP has reached an agreement with the state on terms for providing gas to the project. AGDC expects to also reach agreements with ExxonMobil and ConocoPhillips.