AGPA, Wood Mac Study: Alaska LNG Export Project Makes Economic Sense

A recent study completed by Wood Mackenzie on behalf of the Alaska Gasline Port Authority (AGPA) stated that the economics for a proposed pipeline from the North Slope of Alaska to a liquefaction facility in Valdez, Alaska, are sound compared with other LNG projects around the world. The assessment was based on higher oil prices, which could make LNG more attractive to foreign markets.

“With oil prices hovering today around $100 per barrel and expected to remain at or around that level for an extended period of time, the Alaskan LNG export opportunity appears today to make economic sense. Typical Asian oil-indexed LNG pricing delivers product to regasification terminals at over $15 per million Btu (/MMBtu). On the other hand, Lower-48 and Canadian natural gas, if exported as LNG, could potentially be delivered to Asia at or around a cost of $10/MMBtu, subject to various assumptions and costs,” the report stated.

According to Wood Mackenzie, LNG shipped from Alaska would be priced below $10/MMBtu compared with most competing LNG projects in North America and Australia, which the company estimated at having prices to Asia of between $10-12/MMBtu. This is partially due to the ability of Alaskan projects to utilize existing assets that are producing gas for re-injection. By comparison, Australian projects costs are increasing,

“Taking all into account – basis, shipping, capital requirements – Alaska LNG export facilities can deliver LNG to Asia less expensively than U.S. Lower 48 or Canada and competitively vis-à-vis traditional Australian LNG sources.”

Even with crude prices dropping into the $84-89 per barrel (/bbl) range the past few weeks, the study reported that such a project would still remain economical. “The numbers generally ‘work’ for Alaska LNG exports when the global oil price is north of $75/bbl oil and Asian firm contract pricing reflects a 13% (+) oil indexation,” according to the report.

The study estimates that Alaskan LNG exports could generate between $220 billion to $419 billion for the state of Alaska based on the assumption that the project’s start-up would be in 2021 and have a shelf life of 30 years with 12.5% royalties. The report’s worst-case scenario estimates that the total income for the state would be $75 billion over a 30-year lifespan.

“The economics for LNG from Valdez are superior to the comparable projects," AGPA General Counsel Bill Walker said. "This independent, objective analysis proves what Alaskans need to know: While oil has historically been the driver of state revenues, it is our natural gas that can propel Alaska into economic prosperity and provide low-cost energy for our homes and businesses throughout the state, not just the population centers."