China-Alaska deal chills outlook for B.C. LNG projects

Source: http://www.westerninvestor.com/news/british-columbia/china-alaska-deal-chills-outlook-for-b-c-lng-projects-1.23105849

Just three and a half months after Petronas and its partners pulled the plug on a $36 billion liquefied natural gas project in B.C., one of the partners has reappeared in Alaska.

And what Sinopec has planned for Alaska could blow B.C.’s LNG ambitions right out of the water, according to one industry analyst, because it could sew up the market in China for LNG that B.C. projects were hoping to capture.

On November 8, Alaska Gasline Development Corp. – a state-owned entity – announced a joint development agreement that would see Chinese companies and banks partnering in a US$43 billion LNG project in Alaska.

The Chinese partners include China Petrochemical Corp. (Sinopec), which held a 15 per cent stake in the now-dead Petronas-led Pacific NorthWest LNG project.

The financing partners include the China Investment Corp. and the Bank of China.

The project also has the backing of the Alaskan government, which would have a 25 per cent stake in the project throughits Alaska Gasline Development Corp. (AGDC), which has been granted a generous tax incentive.

“[Alaska] has taken an equity stake,” said Jihad Traya, manager of natural gas consulting for Solomon Associates. “It takes away all that agency issue and all that other discussion around LNG taxes and fiscal certainty. You’ve now created fiscal certainty.”

So not only does the project have the financial backing of one of the world’s biggest banks, and a government equity partner, it also has all of the advantages B.C. boasted.

Those advantages include an ocean of gas in northeast B.C., short shipping distances to Asia and a cold climate, which reduces the energy input costs for chilling natural gas to minus 160 Celsius.

The B.C. advantage does not appear to be sufficient to keep major energy players interested in B.C. Two months after Petronas announced it was pulling the plug on its LNG project in Prince Rupert, Nexen, owned by China’s CNOOC Ltd. called a halt to its Aurora LNG plant on Digby Island.

Blake Shaffer, of the University of Calgary’s department of economics, said the new China-Alaska agreement is far from a done deal. It is not much more than a memorandum of understanding, he said.

Although Alaska has some of B.C.’s advantages, he said the project’s costs would be much higher than any in B.C.

The Alaska LNG project would require a 1,200-kilometre pipeline to bring natural gas from Alaska’s North Slope to a three-train LNG plant in Nikiski on Cook Inlet.

Building the pipeline would be costly due to the higher costs of working in the remote north and the lack of ancillary infrastructure, such as roads that would need to be built, and which B.C. already has, Shaffer noted.

Traya disagrees. He said he expects the pipeline would be built with Chinese steel, which would reduce the costs.

“I can assure you that the need for U.S.-made steel for this project is not going to matter,” he said. “It’s going to be all Chinese steel, valves and engineering.”

The U.S. Energy Information Administration(EIA) predicts China will account for more than a quarter of the global growth in LNG demand out to 2040.