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Alaska publishes analysis of LNG project finances

LNG Industry,

The Alaska Department of Natural Resources (DNK) has released an in-depth report detailing the commercial aspects of the Alaska Liquefied Natural Gas (LNG) project.

The LNG project, a joint venture for BP, ConocoPhillips, ExxonMobil and TransCanada, would transport gas via pipelines from the North Slope to a port in Southcentral Alaska. Gas would be used both domestically and would be exported to Pacific Rim markets. The 30 year project would provide cheaper gas supplies for Alaska, billions of dollars in state revenues, and new economic opportunities for Alaskans.

“The goal of the study is to inform near-term decisions about the fiscal aspects of an LNG project in Alaska – big decisions that involve our royalties, taxes, or even a potential equity stake in the project. This information will help us deliver on our constitutional obligations to maximise the benefits of developing Alaska’s North Slope natural gas resources,” commented Natural Resources commissioner Joe Balash.

LNG market conditions

The ‘Alaska North Slope Royalty Study’, produced by Black & Veatch, analyses key issues that will be considered before setting fiscal terms for a gas pipeline. The study examines LNG market conditions and the global supply chain, reviews fiscal terms that have been established for other successful LNG export projects, and looks at the commercial risks of various business structures for such a project.

The study shows that an Alaskan LNG export project can compete for a place in the Asian LNG market, but changes to the state’s fiscal terms are needed to guarantee a successful project. “We have some work to do, but the good news in this report is that we don’t have to sacrifice our royalty revenue in the future to get a project going,” Balash said.

Full value of state ownership

The study also demonstrates that a misalignment of interests between the state and project sponsors could lead to diminished value for the state’s royalty. “If we can find a way to better align our interests with the project sponsors, we can ensure Alaskans get the full value of their ownership of the resource,” Balash added.

The analysis also covers the state’s royalty rates and terms, which are managed by DNR. Royalties paid by producers are the main way the state benefits from its ownership of the North Slope’s resources, and they are the foundation of revenue deposited to the Alaska Permanent Fund.

“If we do it right, direct state participation in the project can allow the other project sponsors to structure their business and financing in whatever way benefits them. That would leave us free to structure our share of the business in whatever ways maximise the benefits to Alaskans,” Balash explained.

Although the report focuses on revenues, Alaskans will benefit in a number of other ways from a successful project. Over the next few weeks, DNR will publish additional reports regarding the value of Alaska’s energy opportunities and expansions of the pipeline and LNG terminal.

Adapted from press release by Katie Woodward

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