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Alaska Considers LNG Exports to Asia

Working with Exxon (NYSE: XOM), BP (LON: BP), and ConocoPhillips (NYSE: COP)

Written by Brian Hicks
Posted September 25, 2012

Citing Asia’s expanding demand for natural gas, Alaska wants to build a $50 million pipeline and exporting complex to develop natural gas from its North Slope region.

Governor Sean Parnell has given Exxon Mobil (NYSE: XOM), BP (LON: BP), and ConocoPhillips (NYSE: COP) until the end of this month to provide plans to pipe the gas south and condense it into liquefied natural gas (LNG) which can then be exported, Bloomberg reports. Such a joint venture would allow Alaska to compete with growing suppliers of LNG from Australia, East Africa, the U.S. Gulf Coast, and Canada.

The energy companies and the Alaskan government are aiming to successfully market LNG, which could generate up to $20 billion in annual gas sales. As of July, Asian buyers paid nearly six times the relevant futures prices within the U.S., where the ongoing shale revolution has ensured that natural gas prices remain very low.

That same revolution dampened Alaska’s hopes that it could build a pipeline to the Lower 48 American states, so now the next best option – indeed, possibly a better one – is to export the resource to where demand is skyrocketing.

Asian demand is expected to grow by 17 percent by 2017, with China’s consumption more than doubling to 273 billion cubic meters in that period, according to the International Energy Agency. In fact, by 2017, Chinese gas consumption would equal almost 28 percent of the reserves thus far identified in the North Slope.

Alaska expects oil to account for more than 90 percent of the $8.44 billion in revenue that it hopes to get for the fiscal year of 2013, though gas imports might be necessary for supplying its population center in the near future.

An 800-mile pipeline linking Alaska to a southern port would cost between $20 to $26 billion, and the total cost including a liquefaction plant would rise to $40-$50 billion.

Of course, the state already has a record of success in this sort of thing, given its 40-year history of sending fuel to Asia via ConocoPhillips’ Kenai terminal. Since Alaska has one of the two closest shipping routes to Asian markets, it could rely on lower shipping costs, while the state’s relative isolation would help separate it from fractious political debates over domestic shipments abroad.

The North Slope reserves amount to around 35 trillion cubic feet, according to a joint letter to Governor Parnell by Exxon, ConocoPhillips, and BP.

A new LNG facility such as the state wants would produce around 3 billion cubic feet a day, which could generate up to $20 billion in annual sales. Energy companies including TransCanada (TSE: TRP), Exxon, ConocoPhillips, and BP continue to explore options.

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