China may buy Alaska gas, but are producers ready to sell it?
It's been nearly a month since the state signed a joint-development agreement with three Chinese entities to potentially build a natural gas pipeline in Alaska. Now, the Alaska Gasline Development Corporation is announcing another player with it comes to providing natural gas to Asian countries.
AGDC signed a letter of intent Monday with Tokyo Gas Company regarding the sale and purchase of Alaska Natural Gas. This is in addition to the recently announced joint development agreement with China to work together to the development and finance the state's proposed natural gas pipeline from the North Slope.
But, does the state have an agreement to sell the gas produced by oil companies?
That was a question lawmakers asked the AGDC's President, Keith Meyer, at a House Resources Committee meeting Monday. It's one of many agreements on the Alaska LNG project that still need to be secured. Meyer says the corporation says is actively negotiating with oil companies on the matter.
Alaska owns the resource when it's in the ground, but oil companies own the leases to produce oil and gas.
As part of the project, the state is now offering those companies $1 per million BTU of gas, a set unit often used to quantify the commodity.
"To get a dollar for that, a billion a year, we think is pretty reasonable," Meyer said Monday. "It's not as high as Henry Hub, which is north of $2 now, you know, $2.50, but Henry Hub's at the beach in Louisiana, not up on the North Shelf."
But oil companies may not be ready to accept an offer just yet.
"We need to know what it costs to produce gas before we sign an agreement to sell gas," said Damian Bilbao, vice president of commercial ventures with BP, adding that the company hasn't studied what it costs to produce natural gas to take to market.
"We need to make sure that if we're going to enter into agreements for 20 years, 25 years, to sell gas, that we know what it's going to cost to produce."
Without a commitment from oil companies to sell their gas, the state can't market or tax it.
"One of the things that I really want to see is, I really want to see our partners, the producers, at the table negotiating this project because it can't be done without them," said House Minority Leader, Rep. Charisse Millett (R-Anchorage).
If the state, producers and other partners can find agreement on the multiple facets of the project, the Alaska Gasline Development Corporation says it could be shovel-ready by 2019.
The Alaska State Constitution requires that the state get the maximum value for its resources. Lawmakers have also raised concerns about how to ensure that happens with Alaska LNG if the buyer of the resource is also the investor.
"We are dealing with a project that has low margins, so those questions are undoubtedly important, and we'll have to solve those to our satisfaction so that we know we're not short-changing ourselves, but at the same time we're taking the opportunity that's afforded to us in 2017 to try to have something positive happen in the mid 2020s," said Rep. Andy Josephson (D-Anchorage), co-chair of the House Resources Committee.
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