Alaska North Slope Oil and Gas Project, USA

In August 2000, the sponsors of the Alaska North Slope LNG group announced that they were set to continue efforts to economically produce liquefied natural gas (LNG) from the North Slope area of Alaska, having successfully completed the first stage of their studies. The sponsors for the project are Phillips Alaska Inc., BP Exploration (Alaska) Inc., Foothills Pipe Line Ltd. and the Marubeni Corporation. Foothills Pipelines is a joint-venture formed by TransCanada Pipelines Limited and Westcoast Energy. The North Slope region of Canada is believed to hold over eight trillion cubic feet of natural gas, most of which is as yet untapped. The North Slope project aims to construct a pipeline to transport natural gas from the northern parts of Alaska to Canada and the rest of the USA via a treatment facility on Alaska’s south coast.

NORTH SLOPE STAGE 1

Stage 1 cut the project size by half to seven million tons per year. Foothills Pipe Line said that this reduction enabled the project to become "small enough to gain a toehold in the East Asian market place and yet large enough to make economic sense". The company said that the project would be expandable according to market need. Therefore, the objective of the sponsor group is to pace the project to be ready when the market is ready. Despite this cautious approach, the first phase of the North Slope project still demands several billion dollars of investment.

NORTH SLOPE STAGE 2

The Stage 2 effort will continue to be led by Phillips, located in Anchorage, with work to be conducted by staff from sponsor companies and by contractors. Currently, key activities are conceptual design, project costing, permitting considerations, commercial structure and overall viability. The evaluation of the second stage of projected activity was scheduled to take 15 months to complete; implying that actual work could begin early in 2002.

This stage will concentrate on improving the competitiveness of the LNG project as further reductions in cost and competitiveness are necessary. Foothills believe that the opportunities for those improvements lie in commercial areas, such as marketing, financing, government fiscal and regulatory policy, and possibly synergies with other gas commercialisation options such as pipeline gas to the other 48 states of mainland America or gas-to-liquids.

A project is beginning regarding a pipeline to transport the gas from the production site to Canada and the USA. The costs and scope are being developed and will primarily be a function of the level of activity associated with the route options. At this point, the initial work program is expected to cost about $75 million. Staffing levels could range from 50 to 100 full time equivalent staff from the three companies, with significant contractor support. The work effort will be primarily managed and staffed in Anchorage, with other potential joint work locations in Canada and the USA.

NIKISHI GAS TO LIQUIDS (GTL) TEST FACILITY

As part of the project, BP is constructing a gas to liquids (GTL) facility at Nikiski. The plant, which is costed at $86 million, is a test facility designed to probe the method’s suitability.

LNG MARKETS AND THE NORTH SLOPE ALASKA PROJECT

The LNG project has gone ahead despite the deflationary pressures evident in the LNG market, and the market’s increasing move to short term contracts. The North Slope sponsors have decided to go ahead because there is an expectation that the growing demand for LNG will outstrip known sources of supply. This is especially true of North America, although a supply crunch is also expected (on a lesser scale) in East Asia.

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