Daily Archives: August 30, 2010

Basis for Estimates of Alaska North Slope Netback Oil & Gas Values (August 28, 2010)

The purpose of these estimates is to provide an indication of the relative value of Alaska North Slope (“ANS”) oil and gas to the Alaska economy. The estimates provide values, netted back to the field, for ANS oil, and ANS gas delivered through two outlets – through an overland pipeline through Canada to the Lower 48 (“AGIA Gas”), and through a pipeline to Valdez, Alaska, for conversion to LNG and ultimate sale in the Pacific Rim (“Valdez LNG”). These estimates attempt to provide field netback values because that is the starting point used to calculate royalty and production taxes which, together, fund a large portion of Alaska state government.

To be clear, neither of the market outlets for ANS gas actually exist today. The reported value for the Alaska Gasline Inducement Act (or “AGIA”) market estimates what the current netback to the ANS would be for gas transported initially to the Canadian AECO hub through a pipeline yet to be built, and then on to the Lower 48 through either existing pipeline systems or additional pipelines yet to be built. The second value, for “Valdez LNG,” estimates what the current netback to the ANS would be for gas transported initially by pipeline yet to be built to Valdez, Alaska, then liquefied at an LNG liquefaction facility yet to be built, then transported by ship and sold in markets in the Pacific Rim.

Simply because the facilities for those market options have yet to be constructed, however, does not mean that current estimated netback values for gas using those market outlets cannot be constructed. A current market price for gas available at the AECO hub (named for the Alberta Energy Company facilities first used as a pricing point), for example, is reported for each weekday by publicly available sources. Similarly, a current netback price for LNG delivered to the port of Sodegaura, Japan, from the terminus of an existing LNG liquefaction facility of comparable distance from Valdez to that port is periodically reported by the Oil & Gas Journal. In addition, substantial public information has been developed and made available over the last two years regarding the cost, and likely tariffs, of the facilities necessary to deliver gas from the ANS to those points, enabling the construction from public data of an estimated netback value from those pricing points to the ANS. Continue reading