Alaska releases study of proposed LNG project’s commercial aspects

Alaska’s Department of Natural Resources released a study of the commercial aspects of a proposed LNG export project the three major North Slope oil and gas producers and TransCanada Corp. are pursuing.

The 191-page Alaska North Slope Royalty Study by Black & Veatch analyzes key issues that state agencies and legislators will consider before setting fiscal terms for a gas pipeline.

It examines LNG market conditions and the global supply chain, reviews fiscal terms that have been established for successful LNG export projects around the world, and looks at the commercial risks of various business structures for an Alaska project, DNR said.

The study demonstrates that an LNG export project can compete for a place in the Asian LNG markets, but it will likely take changes to Alaska’s fiscal terms to ensure a successful project, Natural Resources Commissioner Joe Balash said in Anchorage on Nov. 18.

“We have some work to do, but the good news in this report is that we don’t have to sacrifice our royalty revenue in the future to get a project going,” he indicated.

Balash said the study also demonstrates that misaligned interests between the state and project sponsors could diminish the state’s royalty value.

ANS lessees pay a minimum of 12.5% royalty on all hydrocarbons produced and sold, he explained. The value of that royalty is measured at the lease after transportation costs are deducted. Depending on the business and financing structure chosen by project sponsors, those transportation charges can be higher or lower—with the opposite impact on royalty values.

“If we can find a way to better align our interests with the project sponsors, we can ensure Alaskans get the full value of their ownership of the resource,” Balash said.

Contact Nick Snow at nicks@pennwell.com.

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