As Alaska ponders the quickly changing global market for liquified natural gas (LNG), Asia has always been the obvious customer.
Alaska has a geographic advantage with its direct shipping routes to Japan and its steady, uninterrupted supply to that island nation for decades. The relationship with Japan remains strong, and Japan’s energy requirements are steady.
But nearby China is the big prize, and that prize is being claimed early by Cheniere Energy. Last week, a ship loaded with LNG exited the newly expanded Panama Canal and headed for China.
Shell’s Maran Gas Apollonia loaded up at the Sabine Pass LNG plant on the Gulf Coast of Louisiana early last week and by Friday had transited Panama. Shell does not publicize where its ships are bound. The industry, however, has determined the destination is China and according to real-time maritime tracking software, that’s in the neighborhood.
The expanded Panama Canal reduces transit time from the Gulf Coast from 16,000 miles to 9,000 miles. For comparison, Nikiski, Alaska to Japan is about 3,000 miles.
Sabine Pass, a Cheniere property, has been exporting from its first terminal since February to South America, India, the Middle East and Europe. But the game is changing with Panama.
A surge in U.S. gas production from shale in the Lower 48 has prompted massive investments in export terminals on the Gulf Coast. Sabine Pass, for example, is expected to start shipping from its new second terminal this month.
ALASKA’S NATURAL GAS CHIEF’S CONNECTION
The Alaska Gasline Development Corp. recently hired an expert in Gulf Coast exports, and that may turn out to be a big advantage to Alaska’s understanding of global trends.
Keith Meyer was previously the president of Cheniere LNG, where he headed up the development of the Sabine Pass receiving terminal. He also was president of LNG America, a natural gas logistics company he founded.
AGDC, over which he is now president, carries the State of Alaska’s interest in a hoped-for natural gas project that would ship 20 million tonne per year to Asian markets from Prudhoe Bay via an 800-mile line. It’s the largest project in North American history.
The controversial project is completing its preliminary front-end engineering (pre-FEED) phase this year and will face a decision point about moving forward. The pre-FEED work has been managed by ExxonMobil and will provide a new cost estimate, which is expected to be higher than the initial $50 billion projected price. Observers speculate that Gov. Bill Walker is positioning the agency to take over the lead position in the project and turn the gasline into a state-owned and state-run entity.
If the project proceeds, the next step would be the full engineering of the project, which could cost as much as $2 billion. The private sector partners in the project — ExxonMobil, BP and ConocoPhillips — have indicated they may not be ready to move ahead now, because of the long-term economics of the project don’t pencil out due to competition and lower gas prices.
Exxon reported a 59 percent decline in profit for the second quarter, while CP reported a loss of close to $1 billion.
Companies are repositioning themselves for a long-term period of low prices, making decisions based on that assumption.
And that’s where the new Sabine Pass terminals in Louisiana factor in, along with the expanded Panama Canal. This is a major sea change for Alaska LNG.