LNG

The US Federal Energy Regulatory Commission has finally approved permits for the construction and operation of the Alaska LNG project and the State-backed Alaska Gasline Development Corp. (AGDC)  will now decide if the economics can attract investors and allow the long-awaited venture to go ahead.

“FERC’s authorization validates that the Alaska LNG project can be safely built and operated, delivering numerous potential benefits with manageable environmental impacts,” said AGDC President Frank Richards.

“This approval signifies the completion of a rigorous and comprehensive evaluation that has engaged environmental and energy experts at dozens of federal and state regulatory agencies,” added Richards.

Analysts noted that obtaining FERC approval significantly de-risked the project execution with defined environmental stipulations.

The project was launched almost 10 years ago and there is still some hope that LNG would be produced and exported by 2026 after engineering, construction and production costs were estimated at around $43 billion.

However, the timing could not be worse for seeking investors amid the oil price slump and only a partially recovery at present above $30 per barrel.

Chinese energy companies and banks had previously expressed interest in taking part in the Alaska venture, though they disappeared from the picture when the US-China trade dispute broke out.

The FERC permit grants building consent for a liquefaction facility on the Kenai Peninsula designed to produce up to 20 million tonnes per annum of LNG for export.

It also include permission to construct and operate a pipeline of 807 miles in length and capable of transporting up to 3.9 billion cubic feet of gas per day to the liquefaction facility from a gas treatment plant located at Prudhoe Bay in the North Slope, as well as two additional natural gas pipelines connecting production units to the gas treatment plant.

The Department of Energy has also authorized export permits for 20 MTPA to be supplied to nations with or without a Free Trade Agreement with the US.

“The Alaska LNG project is the last remaining LNG project before FERC covered by the Fixing America’s Surface Transportation Act (FAST-41 Act),” said the regulator in reference to a fast-track measure required by Congress.

“The Commission took action today ahead of the scheduled June 4, 2020, final decision set by the statute,” the FERC explained.

“The federal authorization is a key step in determining if Alaska LNG is competitive and economically beneficial for Alaska,” said Alaska Governor Mike Dunleavy.

“I commend the AGDC team for their diligence. The ongoing project economic review and discussions with potential partners will determine the next steps for this project,” added Dunleavy.

Alaska’s Congressional delegation, Senator Lisa Murkowski, Senator Dan Sullivan and Representative Don Young welcomed the FERC decision and issued a joint statement.

“We commend the continued work by both FERC and AGDC to advance the Alaska LNG project to this key point,” they said.

“The certificate issued by FERC is the culmination of years of work and will be a major asset for both investment in Alaska and our nation’s long-term energy security,” they added.

“Development of our vast natural gas resources will further expand North Slope opportunities and could be a game-changer for our state economy,” the three politicians stated.

The biggest commercial advantage of adding a major liquefaction facility in Alaska is the shorter shipping route to Asia than from the Gulf Coast, where four of the six US LNG export facilities currently in operation are located.

The AGDC, along with energy companies such as ExxonMobil with North Slope assets and who will supply the feed-gas, has given a contract to engineering company Fluor Corp. to update the 2015 estimate that the project would still cost $43Bln to complete. 

China Petroleum and Chemical Corp., or Sinopec, the largest Chinese owner of oil refiners and which has been seeking to increase US LNG volumes to match its Australian supplies, reported a heavy first-quarter loss.

US Commerce Secretary Wilbur Ross believes that re-starting liquefied natural gas exports to China could form part of an interim agreement and end the current trade war and stand-off between both nations while rebuilding trust.

Sempra Energy, operator of the Cameron LNG plant in Louisiana, sold its majority stake in the Peruvian power distribution company Luz del Sur to China Yangtze Power International for $3.59 billion in cash and also signed a liquefied natural gas supply accord with China Yangtze’s parent company.

Sempra said it sold its 83.6 percent stake in the Peru power company whose business includes supplying customers in the capital Lima with electricity.

Sempra added that its LNG unit had entered into a memorandum of understanding with China Three Gorges Corp., China Yangtze’s parent, regarding potential cooperation in supplying LNG to support demand growth in China.

“Ultimate participation remains subject to finalization of a definitive agreement, among other factors,” said Sempra.

“This initial agreement with China Three Gorges represents an opportunity to support strong growth in natural gas demand in Asia, with future expansions of our LNG projects right here in North America,” said Jeffrey W. Martin, Chairman and Chief Executive of Sempra Energy.

Proceeds from the sale of the Luz del Sur utility will be used to strengthen Sempra’s balance sheet and meet the growing capital needs of its core utilities in California and Texas.

The Peruvian sale will also include Sempra Energy's interest in Tecsur SA, which provides electric construction and infrastructure services to Luz del Sur and third parties, and Inland Energy SAC, Luz del Sur's generation business.

“The sale is expected to be completed in the first quarter of 2020, subject to customary closing conditions, including approval by the Peruvian anti-trust authority and the Bermuda Monetary Authority,” said Sempra in relation with privately held Luz del Sur with Bermuda links.

The San Diego, California-based company said that an active sales process was continuing for Sempra’s electricity businesses in Chile, including the company's 100 percent stake in Chilquinta Energía SA and Tecnored SA.

Sempra expects to announce an agreement on the Chilean asset sale in the fourth quarter of 2019.

The US company said BofA Merrill Lynch and Lazard acted as financial advisors to Sempra Energy on the sale of the Peruvian business to China Yangtze and White & Case acted as legal advisors.