Behind the natural gas “window” to the fiscal promised land that former Alaska Gov. Bill Walker and his half-million-dollar, Texan hired-hand spent four years trying to sell Alaskans, it now appears there was hiding a brick wall.
Gas prices that were low and trending lower while Walker was governor are now on the verge of freefall, dooming any chance of a near term start to construction on one of the globe’s costliest and most complicated natural gas projects.
S&P Global Platts is predicting liquified natural gas (LNG) spots prices in northern Asia will hit record lows below $3/MMBtu this year. That compares to a spot price above $20/MMBtu in 2014 when global gas supplies were tight.
LNG is the commodity that Walker and sidekick Keith Meyer, Walker’s natural gas czar, repeatedly claimed the Chinese were on the verge of committing to buy. Such a purchase agreement would be the first and necessary step toward the state trying to finance a pipeline from the North Slope to an LNG plant on Cook Inlet costing $43 billion or more.
Much was made of a nothing agreement to work toward a pipeline that Walker signed along with Chinese officials in 2017.
“The state of Alaska took a major step toward realizing a long-sought pipeline to move natural gas from the North Slope to Asia, siding with interests from China after major oil companies stepped back from the project,” wrote the Associated Press’s Mark Thiessen reported at the time.
“‘This is the market responding, and we’re very, very pleased with that,’ Walker told reporters in a teleconference from Beijing.”
Only it wasn’t any market responding. It was Walker mistaking window shoppers for customers.
A state-commissioned study conducted at mid-decade by Wood-McKenzie, a respected consultant on energy projects, had previously concluded the proposed, $43- to $65-billion Alaska plan to pipe gas from the North Slope to the Kenai Peninsula, liquefy it, and then ship it to Asia was “one of the least competitive” in the world.
Long possessed by a dream of becoming the Alaska governor who oversaw the construction of a long-talked-about natural gas pipeline, Walker didn’t let that get in his way.
His response was to abandon an agreement with the major oil producers that had been working on a plan for a gas pipeline at some indefinite time in the future, have the state take over the project and fast track it.
“There’s a window out there,” he told Commonwealth North, a state business promotion group in 2016. All Alaska had to do was to put itself into a position to pump gas through the window..
The Wood-McKenzie report, Meyer offered, indicated there was a possibility and instead Alaskans turned their focus to that summation about the state’s lack of competitiveness.
All the state had to, in Meyer’s view, was get crackin’ to be ready to hit the magic window in 2023-2025 when the markets would be clamoring for gas. Gas industry experts scoffed at the idea as did officials of Exxon-Mobil, the company that had been leading the gas consortium before the state took over.
It now looks like they were right. The Chinese look to have played Walker like a big fish in order to improve their bargaining position with the Russians.
A 2014 deal between the two countries had resulted in an agreement on a gas pipeline that finally began moving gas from Siberian fields to the Chinese border city of Heihe in December. What the Russians have dubbed the “Power of Siberia” pipeline is eventually planned to stretch 5,000 miles from Siberia to Shanghai.
“The pipeline is scheduled to provide China with 5 billion cubic meters of Russian gas in 2020 and the amount is expected to increase to 38 billion cubic meters annually from 2024, under a 30-year contract worth $400 billion signed between the China National Petroleum Corp and Russian gas giant Gazprom,” reported Xinhua, the Chinese state council news organization.
As the Power of Siberia was being built, with Walker and Meyer enjoying their junkets to Asia and hoping for a gas deal for Alaska, China was also in negotiations with Russia on several big LNG projects, and appears to have gotten terms it liked.
In August, two Chinese companies signed agreements with Russia’s Novatek to buy a 20 percent stake in its Arctic LNG2 plant, Reuters reported. That deal followed on Rosneft, Russia’s largest oil producer, selling 20 percent of its gas subsidiary to Bejing Gas in 2017.
With China pumped on Russian gas, Walker’s dream market went away, and prospects for Alaska gas elsewhere didn’t and now really don’t look much better. The globe is in the midst of a production boom, and most of the gas is coming from places with significantly cheaper development and operating costs than Alaska.
Meanwhile, with production already up, more gas looks to be coming online even as the market tries to reduce its use of hydrocarbons.
Foreign Affairs magazine was on Monday bemoaning how “Striking Oil Just Ain’t What It Used to Be.” But the story below the headline was about a lot more than oil, including BP’s big gas find only months earlier.
“The British oil major BP announced the largest natural gas discovery of 2019: the energy equivalent of 1.3 billion barrels of oil lies waiting to be extracted off the coast of Mauritania, more than enough to support a liquefied natural gas (LNG) hub,” Felix Clay wrote. “And the same year in Mozambique, Total acquired a $3.9 billion stake in an LNG project whose total cost will likely dwarf that country’s national economy.”
One of the original players in the development of Alaska’s North Slope oil, BP announced last year that it was bailing out of the 49th state. The reason was simple. BP’s returns on its Alaska’s investment weren’t particularly good anymore, and it had better options elsewhere in a tough global market.
Too much gas
“At a time when many countries are finally trying to reduce their reliance on fossil fuels, the world is suddenly awash in oil and gas discoveries,” Felix wrote. “Large oil and gas companies see long-term prices trending downward. As a result, they are investing in fields that can be brought into production quickly instead of developing expensive, far-flung reserves.”
Alaska is both expensive and far-flung.
And although all industry analysts expect global LNG prices to continue to creep slowly upward, not go down, the near term market does not look good.
The World Bank, which forecasts out to 2030, predicts U.S. and European prices will be about 60 percent higher than today by the end of the decade with Japanese prices falling by about 15 percent in this time period.
Though that might sound good, the U.S. price will still be lower than what natural gas was going for in 2014, and the Japanese and European prices will be only 60 to 70 percent of what gas was going for in those regions in 2014.
As Exxon-Mobil puts it in the company energy perspective for now through 2040, “the LNG market is expected to remain highly competitive due to abundant natural gas resources and many aspiring exporters.”
More than $100 million deep in gas pipeline studies, the state of Alaska is plunging ahead on permitting and hopes to be this year granted a federal permit for pipeline construction. When that construction will start – if ever – is a total unknown.
Prospects for the pipeline are so slim that there is new interest in shipping North Slope gas to market from an LNG terminal in the Arctic Ocean.
With the planet warming and Arctic ice diminishing almost every year, Lloyds Energy is dusting off this idea rejected in the past because of the shallow water on the state’s northernmost coast.
“Dubai-based Lloyds Energy was formed in 2013 to develop floating LNG projects,” reported S&P Global. The company is studying putting such a plant six to 12 miles offshore where there is enough water for tankers.
Whether the plant would operate seasonally or year-round is unclear, but ExxonMobil has already agreed to provide it natural gas.
“ExxonMobil is now operating a gas cycling and concentrate production project at the (Point Thomson) field, injecting produced gas back into the high-pressure reservoir and shipping the liquid condensate by pipeline 60 miles west to the Trans Alaska Pipeline System,” S&P reported. “The gas cycling and condensate project has been technically challenged, however….Elimination of the gas injection by selling produced gas as LNG for export will allow ExxonMobil to maximize liquid concentrate output.”
That might be a bit of an understatement. ExxonMobil has had such big trouble controlling pressure that its hoped for gas to liquids (GTL) production has sometimes fallen below the 10,000 barrels per day promised the state of Alaska.
And it doesn’t appear to be from lack of trying to produce.
ExxonMobil has sunk a reported $4 billion into Point Thomson. It would no doubt like to find a new revenue stream to help get some money flowing back into the company to pay back some of that investment.