Daily Archives: February 9, 2011

Natural Gas Plant: LNG Plant in Kenai to Shut Down – ktuu.com

Story from the AP posted a few minutes ago on KTUU: Natural Gas Plant: LNG Plant in Kenai to Shut Down – ktuu.com.

The gist of the story is this:   “ConocoPhillips and Marathon Oil Corp. plan to shut down the Nikiski liquefied natural gas plant in Alaska after more than 40 years in operation.  Officials cite deterioration in the LNG market for the decision.

This development has negative implications for Cook Inlet gas development, the Bullet Line and the Valdez LNG line (if the fully depreciated Kenai plant can’t maintain an existing position in the Asia LNG market, not likely a new build plant can penetrate the market).   A development that casts a long shadow.

New Report on Economics of Alaska Instate Gas Line

An article in today’s (February 9, 2011) Fairbanks News-Miner reports on a study by Roger Marks for the Office of Federal Coordinator, Alaska Natural Gas Transportation Projects.  The article, authored by Dermot Cole, is available here.

The lead paragraph does a good job summarizing the study’s conclusion:  “If the state wants to subsidize a gas pipeline, it could get far more benefit out of using its resources to help the economics of a large-scale pipeline instead of putting money in a small-diameter line from the North Slope to Anchorage.”  The full study is here.

My immediate reaction is that the study provides a good analysis as far as it goes.  However, the study necessarily accepts as a boundary that the instate line (due to provisions built into AGIA) is limited to 500 MMcf/d. If AGIA is terminated (as it should be), those limitations are eliminated and a different discussion around the instate line becomes possible.

Given that limitation, I would not rely at this point on some of the other conclusions contained in the study (for example, that hydro may be a preferable alternative for Southcentral) until the smoke clears on whether the 500 MMcf/d limitation is terminated.  If the limitation is terminated, the discussion around potential options will change.  Alaska shouldn’t lock into other alternatives until that fundamental issue is resolved.