First look at state investment in gas project?

State Department of Revenue officials will have financial modeling completed by early next year on financing options for the proposed $43 billion Alaska LNG Project, and they will include analyses of possible state investment including the Permanent Fund. Legislators were briefed on the modeling in an update provided by state agencies and Alaska Gasline Development Corp., the state gas corporation leading the big LNG project. Legislators were generally negative on the idea, but investing with the Permanent Fund isn’t the only option for state involvement, Deputy Revenue Commissioner Mike Barnhill said. It would be one included in the analysis, however. This is the first time information on a direct state investment would be presented to the public. On other Alaska LNG developments, AGDC officials said they met again with potential Chinese LNG customers and partners, the group led by Sinopec, at the recent World LNG Conference in Washington, D.C. and that all looks well for a signing of agreements at the end of this year, as was planned. There is worry that U.S. LNG projects will get caught up in a worsening trade spat with China but Alaska LNG feels the fundamentals of its project are good enough to survive, and that trade issues will ultimately be resolved. AGDC will also begin an investor “road show” next month to acquaint potential equity investors with the project, and will be soliciting for investments next spring.

 

Higher gas price now assumed for Alaska LNG Project

The state’s Alaska Gasline Development Corp. told legislators in a briefing last week it is assuming a price for purchasing North Slope gas for the Alaska LNG Project to between $1 and $2 per million British Thermal Units, or mmbtu, up from $1 per mmbtu discussed in earlier planning. Legislators think this might reflect a gas price in BP’s “term sheet” agreed with AGDC in May, which covers major items in a possible sale of BP’s North Slope gas. BP’s terms are still confidential.

 Other items from the legislative briefing:

• State administration officials said they will reestablish the municipal advisory group for the project, representing local governments along the route of the proposed pipeline. The goal is to get agreement on a Payment-in-Lieu-of-Taxes plan to replace the present municipal property taxes. Getting agreement among the municipalities on this won’t be easy, state officials concede, but this is a “must do” before the gas deal comes together.
• AGDC said its planning now assumes an in-state gas wholesale price of $4.50 per mmbtu on top of the price paid to the gas producer. If that is $2 per mmbtu, the wholesale price might be $6.50. That’s in the lower range of gas prices Cook Inlet producers now receive, but it shows that Cook Inlet gas will likely be competitive with the North Slope.

 

 New competitor for Alaska LNG?

 A $30 billion liquefied natural gas project in Kitimat, B.C. proposed by a Shell-led consortium that includes Petro-China, Mitsubishi and Korea Gas could be competition for Alaska because of low prices for natural gas feedstock in Canada. Analysts in Canada expect a Final Investment Decision later this year. TransCanada Corp., once a partner in the Alaska LNG Project, would build a 416-mile pipeline to connect the LNG plant with the 50,000-square-mile Montney shale gas resource.

 

Production test for gas hydrate

Japanese research groups and the U.S. Department of Energy are in advanced planning for a long-term production test of methane from gas hydrates at Prudhoe Bay, which could be significant if the tests show production to be technically feasible. Hydrates are ice-like structures that exist in certain conditions, such as under permafrost on the North Slope, which hold very large quantities of methane, the main component of natural gas. Hydrates exist offshore also, and Japanese researchers have located and tested hydrates found off Japan’s shores. The North Slope hydrates are accessible because of Prudhoe Bay infrastructure, however, and a long-term production test has been in the planning stages for some time.

If technical production is possible the next step would be to refine technologies to do it economically. If that can be done on the slope, because of its existing infrastructure, huge amounts of new gas resources could be added to known reserves to support, for example, a gas pipeline.

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 Glitch for Prudhoe methanol plant?

It may be a minor glitch, but then again it may not. The state Division of Land and Water Management is soliciting expressions of interest in a surface lease held by the Alaska Industrial Development and Export Authority at Prudhoe Bay, and which is included in assets to be transferred to the Interior Gas Utility, of Fairbanks. AIDEA has meanwhile negotiated a sublease with Prudhoe Bay Chemicals, a startup, to manufacture methanol for local use on the slope. The company has a contract to buy gas and sell methanol to BP but must first secure rights to the pad, which means IGU must secure rights to the surface lease.

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Slope production dips slightly

North Slope oil production averaged 521,398 barrels per day for the twelve month period ending June 30, Fiscal 2018, the Department of Revenue reported in a preliminary estimate. This is only slightly down from the department’s estimate of 521,800 barrels daily the department estimated in its spring revenue and production forecast update. For the prior year, FY 2017 (July 1 2016 through June 30, 2017) production averaged 526,800 barrels daily.

Oil prices are rising, and the department now estimates there could be another $100 million collected in FY 2018 beyond the $2.3 billion estimated in the spring forecast update.

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BP/Conoco asset swap in Kuparuk

BP and ConocoPhillips finalized an asset swap to exchange BP’s minority 39.2 percent share of the Kuparuk River field for ConocoPhillips’ 16.5 percent holdings in the Claire field in the U.K. offshore. The change doesn’t affect BP’s Alaska operations because ConocoPhillips is the operator at Kuparuk. The significance, however, is that it consolidates ConocoPhillips’ ownership and control in Kuparuk, which allows it to get new in-field development decisions okayed faster. Whenever there is split ownership decisions are more complex because approvals of more than one company are needed.

There is concern, however, that this represents one more step in BP’s divesting its Alaska holdings (the company sold off some slope assets to Hilcorp earlier) but another effect is that it focuses BP’s attention on commercializing natural gas in the Prudhoe Bay and Point Thomson fields, where it is a major owner.

 

 88 Energy drops shale oil exploration, for now

Australian independent 88 Energy suspended its North Slope shale oil flow test, citing poor results. The company is now pursuing conventional oil targets along with Great Bear Petroleum, another independent that earlier pursued shale oil prospects on the slope.  What’s wrong with our Alaska shales? Why can’t we be another Eagle Ford? Special report coming.

 

Petroleum: Furie to resume Inlet drilling

Furie Operating has reactivated the Spartan 151 jack-up rig in preparation for drilling four more gas production wells in its Kitchen Lights field in Cook Inlet. Two wells are now producing. Furie has also brought in new management at the request of its financiers, who will underwrite the drilling.