Last week, we noted how a deal was in the works that could bring about a start to natural gas production from Alaska’s North Slope. Leases in the Ft. Thompson area were first issued in 1977, and not a cubic inch of gas has ever gone anywhere except back into the ground.
The governor of Alaska has called a press conference for later today at which he is expected to announce that an agreement has been reached between the state and the companies that hold leases in the Ft. Thomson area. Those are Exxon Mobil Corp. (NYSE: XOM), BP plc (NYSE: BP), and ConocoPhillips (NYSE: COP).
According to a report at nasdaq.com, the state has extended the companies’ leases and the companies have agreed to start producing natural gas at Ft. Thompson by May 2016. Initial volumes would be about 200 million cubic feet of natural gas per day and 10,000 barrels/day of condensates.
A pipeline is “being designed” to transport up to 70,000 barrels/day of condensate to the existing Alaska Pipeline, which carries crude oil from the North Slope to Valdez on the south coast of the state. Dwindling production on the North Slope threatens to force the closure of the Alaska Pipeline, and adding the condensates will at least delay that day.
The nasdaq.com report also cites a document in which the companies also agree to “undertake work for commercialization of North Slope gas.” If the companies do not have a deal to sell Alaskan gas by June 2016, they must increase condensate shipments by 20,000-30,000 barrels/day to the existing Alaska Pipeline. The natural gas production would be injected into existing North Slope wells to enhance crude oil production.
The state wants the companies to build an Alaska natural gas pipeline (the gray line on the map) and a gas liquefaction plant to produce liquefied natural gas (LNG) to sell to Asian markets. That is very unlikely to happen unless Exxon and the rest can find a buyer for vast amounts of LNG on a very long contract.
What the deal boils down to is an extension of the leases the companies hold in Ft. Thomson in exchange for a promise by these companies to transport their condensates on the Alaska Pipeline. Beyond that, it’s the status quo ante — if the companies can find a market for the gas, they’ll build a pipeline to get it to that market. That’s always been true, but it’s never been realized. And it is very likely not to be realized this time either.