From the Alaska Journal of Commerce

After buying a mothballed liquefied natural gas export plant in Nikiski, Marathon Petroleum is planning to flip it around to become an import terminal.

Marathon Petroleum, the newly-merged oil and gas giant formerly known as Tesoro and then Andeavor, owns the former ConocoPhillips LNG terminal on Cook Inlet and the refinery directly across the Kenai Spur Highway from it.

Marathon sub Trans-Foreland Pipeline filed with FERC to operate as LNG import plant

In March, Marathon subsidiary Trans-Foreland Pipeline Co. filed an application with the Federal Energy Regulatory Commission to operate an import terminal at the LNG plant.

Proposed Alaska LNG export plant is only a half mile away

The plant is about a half-mile from the proposed site of the liquefaction plant for the Alaska LNG Project, a megaproject proposed to bring stranded natural gas from the North Slope to Nikiski for export to Asia.

The Alaska Gasline Development Corp., the project lead, and producer stakeholders ExxonMobil Alaska and BP Alaska have all filed motions to intervene in Trans-Foreland’s application, citing their interest in the Alaska LNG Project as justification.

“AGDC may be affected by the modifications to, and ultimate use of, the Kenai LNG Plant for which authority is sought in this docket,” AGDC’s motion states. “AGDC is an interested party that may be affected by Commission action on this application. AGDC’s interests are not adequately represented by any other party, and its intervention is in the public interest.”

AGDC spokesman Jesse Carlstrom referred back to the language on the motion when asked to clarify how the project would be affected by Trans-Foreland’s proposal. He said AGDC’s motion to intervene was made independently of other parties.

ExxonMobil did not respond to a request for comment. BP spokeswoman Megan Baldino said the language used in the motion to intervene is standard practice.

“BP filed the intervention basically to reserve our right to comment in the FERC process,” he said. “Interventions like this are fairly common.”

Wants to import LNG for cool down for the terminal

Trans-Foreland’s application states that it wants to import LNG to use in a cool down project for the terminal. The facility is currently in a warm idle status and the LNG would be used to bring parts of it back into active status — the liquefaction side would remain in warm idle status. The modifications wouldn’t require any expansions of the existing footprint of approximately 161 acres, according to the application.

In addition, the boil-off-gas — a byproduct of re-gasifying LNG — could be delivered to the nearby refinery to power its operations, according to the application.

“After completion of the Project, the Kenai LNG Plant will be able to deliver up to 7,000 MMBtus (million British thermal units per day), with the average delivery of approximately 5,000 MMBtus/d to the Refinery,” the application states.

One million British thermal units are roughly equal to a thousand cubic feet, or mcf, or natural gas.

Avoid purchasing gas from local utilities

Delivering the gas to the nearby refinery would reduce Marathon’s need to buy gas from the local utilities, Homer Electric Association and Enstar Natural Gas Co., to run its operations. The refinery is one of the area’s biggest industrial consumers of natural gas. HEA declined to comment on Trans-Foreland’s application.

Currently, the main natural gas producer in the Cook Inlet area is Hilcorp, which owns many of the offshore oil and gas producing assets in Cook Inlet and a number of onshore pads.

HEA’s only firm contract for natural gas is with Furie Operating Alaska — which operates the offshore Kitchen Lights Unit in central Cook Inlet — but Furie has had production issues and failed to deliver on its gas contract obligations for months this spring.

The utilities covered the lapse with spot market purchases and stored gas in the joint Cook Inlet Natural Gas Storage Alaska facility known as CINGSA.

Gas production in Cook Inlet declined sharply from 2005 to 2012, prompting the state to pass tax credits aimed at revitalizing oil and gas development in the inlet.

Utilities in the area, concerned about gas shortages, began to look for options to import LNG or compressed natural gas in 2012, according to a Northern Economics report on the Cook Inlet oil and gas industry published in 2014.

Generally, oil and gas is more expensive to develop in Alaska than elsewhere.

A March 2018 report from the Alaska Department of Natural Resources noted that there are significant gas reserves remaining in Cook Inlet, but they would only be economic to develop at prices of around $6 to $8 per mcf or more. Recent Hilcorp supply contracts have been in the neighborhood of $7 per mcf.

The estimated volumes identified in the Inlet could supply demand through 2030, according to the report, but costs to develop it will also likely rise.

Worldwide, natural gas prices have been falling as more production comes online. The U.S. Energy Information Administration projects production to continue growing both domestically and internationally through 2019 and 2020, putting downward pressure on prices.

Lack of U.S. flagged LNG tankers mean Marathon can’t use U.S. Gulf Coast LNG supply

Marathon wouldn’t be able to purchase LNG from U.S. Gulf Coast suppliers because there are no U.S.-flagged LNG tankers in operation, and the Jones Act requires ships traveling between U.S. ports to be built, crewed and flagged here. LNG export terminals are planned but not currently in operation on Canada’s west coast.

Trans-Foreland has not yet filed the request to import LNG but plans to do so by the end of the third quarter of 2019, aiming for a first delivery of natural gas by August 2020, according to its application. The existing application does not identify a specific amount of gas the company is seeking to import. Marathon had not responded to a request for comment by deadline.


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