ExxonMobil, state gas corporation reach deal

The figures include the state’s royalty share of gas, which ranges between 12.5 percent and 16.6 percent of the gas depending on the leases. Royalty rates vary among the leases, although most at are 12.5 percent of gas production or revenues.

“Today’s announcement is further evidence that the major North Slope producers are committed to this project. It’s good news but it’s just one step of many needed for a major project like this,” Alaska’s Commissioner of Natural Resources, Andy Mack, said in a briefing Monday for reporters.

As a part of the overall gas sales agreement the state also reached an agreement with ExxonMobil to delay certain deadlines in a 2012 lawsuit settlement with the Point Thomson owners, which are mostly ExxonMobil and BP, Mack said.

Leiza Wilcox, AGDC’s vice president for commercial relations, and ConocoPhillips, the third major slope gas owner is still is discussions with AGDC on commitment of its gas mostly in the Prudhoe Bay field, which amounts to about 9 tcf.

The price terms agreed to between AGDC and the two companies remain confidential, Wilcox said. However, AGDC has estimated that the wellhead price the state itself would receive for its royalty share of gas will likely range between $1 and $2 per million British Thermal Units, or million btu. Although the producers’ price was not disclosed the state’s expectation for prices on its own gas would likely by similar.

“We believe a price in that range ($1 and $2 per million btu) would give the producers a sufficient return and yet allow us to sell LNG at a competitive price in the market,” Wilcox said.

The agreements contemplate the producers selling gas at the wellhead to AGDC and the state corporation selling LNG from the Alaska LNG Project to buyers, most of which are expected to be in Asia, Wilcox said.

AGDC is also in advanced negotiations with Chinese companies including Sinopec as a buyer and Bank of China and China Investment Corp. as financiers for 75 percent of the expected 20 million tons per year of LNG to be exported from Alaska. Final agreements between AGDC and the Chinese companies are expected to be signed by the end of December, she said.

Although they are not as advanced, discussions are also underway with Tokyo Gas Corp., Korea Gas and Petro-Vietnam on the remaining 25 percent of LNG exported, or 5 million tons per year, Wilcox said.

Alaska LNG is a $43 billion-plus project that would build an 800-mile, 42-inch gas pipeline from Alaska’s North Slope to a planned gas liquefaction plant at Nikiski, on the Kenai Peninsula south of Anchorage. A large gas processing plant needed mainly to remove carbon dioxide from the Prudhoe Bay gas would also be built on the slope.

Wilcox said AGDC is making good progress on getting federal regulatory approvals. The U.S. Federal Energy Regulatory Commission is now working on the project’s Environmental Impact Statement and now expects to have it finalized by November 2019. Wilcox said. A federal Record of Decision, which would clear the way for the FERC approval, is expected in February 2020.

That would allow for a Final Investment Decision that year, for construction to be underway in 2021 and completion in 2024 or 2025.

Wilcox also said AGDC doesn’t expect the current trade dispute with China to greatly affect the project. It will likely be resolved before the project’s FID in 2020, she said.

Also, there are discussions underway on how possible Chinese tariffs on imported Alaska LNG could be mitigated. One idea being considered is to request exemption from tariffs for LNG purchased and imported by a Chinese company like Sinopec.

“Otherwise, it would be like China imposing tariffs on its own gas,” she said.

Despite the frictions there are no signs of Chinese purchases of LNG overall slowing down. “We expect the Asia market to continue growing,” Wilcox said.