Tuesday, November 12, 2013

Bill Walker will not hesitate, but Parnell just sits and waits for . . . ?

With the oil and gas conversation in Alaska politics focusing on the upcoming referendum on HB21, the Governor’s recently passed reduction in oil taxes, there has been little news on the natural gas pipeline front since the Producers promised further "studies". The last news from the producers was that they had made a preliminary decision with respect to the port of export. They chose Nikkiski, but were again studying the situation further, meaning no decisions to actually build a pipeline until a time uncertain into the future.

The Producers’ had to know of the impending legislation in Congress that would give a right of way through Denlai National Park. S.157 and H.R. 586 were introduced in June, 2013. This legislation allowed a natural gas pipeline to be built along the 7 miles of existing highway right of way that runs through Denali National Park lands. A take-off to the park facilities through an existing utility corridor would extend from the park entrance to the park facilities to allow the Park Service access to the gas. The Secretary of Interior would be required to issue a permit for the line crossing federal park lands if it meets environmental reviews and meets ANILCA requirements. Per Eric Elam of Young’s office, the legislation passed the House and Senate and was signed into law on September 18, 2013. The bill also provided funding for the Kantishna Micro-Hydro Project, a 50kw hydro-power project to provide power to the Kantishna Roadhouse owned by Doyon RNC.

With the signing of the legislation into law, a major hurdle in the construction of any natural gas pipeline down the Parks corridor using either the Alaska Railroad right of way or the highway right of way has been eliminated. This does not mean that litigation will not ensue on the part of the anti-development forces aligned against any development of Alaska’s resources. These forces have had two major victories to date.

The Pebble Mine project is all but history with Anglo Mining pulling out. Usibelli Coal has not been able to move forward on the Jonesville Coal Mine in the Matanuska Valley for the same reason. Therefore, the likelihood that the greenies will let any natural gas pipeline construction move through Denali, even using the highway right of way, without litigation to extract blood money is unlikely. Alaska’s history is rife with opposition to major resource development by Outside groups who have no other vested interest other than using the courts and Alaska as a revenue source.

The only pipeline corridor that is free of any litigation is the TAPS corridor, which is the choice of Bill Walker in both his 2010 and current gubernatorial campaigns.

Legislatively, the way is now clear for a pipeline down the Parks or a pipeline down the Richardson highways. The choice is which way, and most importantly when?

Japan is facing a shortfall in LNG due to interruptions from some LNG suppliers, such as Nigeria. Japan will be facing higher gas prices over the winter, because of the necessity of purchasing LNG spot cargoes rather than receiving LNG as part of a long term contract supply. The situation is rife for potential for Alaska’s North Slope gas. December deliveries to Japan is $17/MMbtus. Last year, the average was $13.25/MMbtus. Qattar will not be able to supply additional LNG to Japan over the winter, with supplies contracted to other buyers. Qatter supplied gas to Japan helping to keep the price down to $13.25/MMbtus.

The Wood-MacKenzie Report demonstrated a delivery to Japan of Alaska LNG North Slope gas of approximately $8.50/MMbtus. Using a 10% inflation per annum figure since the report’s release in 2010, gives an estimated delivered cost of approximately $11.31/MMbtus today, without respect to market considerations, and depending upon whether or not one believes the government’s inflation figures or what is experienced in the rising prices of other commodities. 

October Japan LNG market prices are $15.15/MMbtu. By December, the Japan LNG market prices are already contracted at $17.20/MMbtu. China is competing with Japan for LNG, causing increasing prices for existing supplies.

The specter of Alaska LNG competing with LNG from Kitimat is very real with Shell’s planned LNG terminal. Shell let a $4 billion contract to TransCanada to build a 2 bcf-2.5 bcf natural gas pipeline to 700 kilometers from B.C. shale fields Kitimat. (Yes, the TransCanada partnered with Exxon . . . ) Shell has partnered with Korea Gas, Mitsubishi and PetroChina to build its Kitimat LNG terminal.

Meanwhile, Governor Parnell waits, the oil companies study, and Alaska faces an increasingly uncertain fiscal future.

Either Governor Sean Parnell does not want to remain governor, or he is getting some bad advice with respect to his failure to move aggressively into the Japanese market.

His competition for the governor’s job will not be so hesitant. Bill Walker has been a relentless advocate of moving Alaska’s North Slope to market as LNG before the LNG market in Asia is diminished by other suppliers. Japan has been a primary focal point in his marketing of Alaska LNG. Walker and the Alaska Gas Port Authority have been tireless in their promotion of Alaska’s natural gas to Asian markets. Remember, the all-Alaska natural gas pipeline being promoted by AGPA and Bill Walker was the basis for Sarah Palin’s campaign for governor. If Governor Sean Parnell will not make a decision, Bill Walker and his Lt. Gov. candidate Chris Fleener will.

For more information:

LNG Insight: Utility buyers change buying strategy for winter



Congressman Young’s press release


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