Why U.S. natural gas companies should be focusing on Alaska

On April 10^th of this year, Conoco suspended its plans to drill in the Arctic Ocean off the northern coast of Alaska. Conoco blamed “unclear” federal regulations related to Arctic Ocean drilling, the Wall Street Journal reports. Shell is also no closer to drilling, as both of its drilling rigs set to drill in Arctic waters off the coast of Alaska have been damaged. But maybe Conoco and Shell should be taking Exxon Mobil’s example and working with legislators to get an Alaskan pipeline built.

Currently, it is very cost ineffective to transport natural gas from Alaska’s North Slope to the Midwest or even to cities in Canada. The Gas Pipeline Project Office, a governmental sector of the State of Alaska estimates that if everything goes as planned and the right regulations get passed, the project could be completed by 2021. The Alaskan State government is in support of the pipeline because it would be a large revenue generator and provide many Alaskans jobs.

Why is now the perfect time to build this pipeline? Demand is becoming steadier and thus, cash flows are more predictable.  Not long ago, demand was much higher in the winter months than summer months because natural gas was used primarily for heating. But, now natural gas is being used in the summer to produce electricity by many new natural gas fired power plants.

Also, many companies are slowly, but surely, switching their fleets to natural gas powered vehicles to cut variable costs and decrease pollution. Part of the trend is driven by tax incentives offered by the federal government to companies/individuals who purchase alternative powered vehicles.

According to the U.S. Energy Information Administration, the top natural gas producing states are Texas, Louisiana, Wyoming, Oklahoma, and Colorado but Alaska could enter that list once the pipeline is built.

So why is the pipeline not being built yet? There are multiple laws that need to be passed by the U.S. Federal government, and the Alaskan government to allow the construction to proceed. Then the parts of the pipeline that run through Canada have to be approved by the Canadian government. Plans for the pipeline have been drafted, but licenses still have to be granted. What is behind most of these governmental barriers? Environmentally conscious groups are at the forefront. The BP oil spill in 2010 and an oil line rupture in Kalamazoo recently have shed a negative light on oil and gas exploration and transportation. But there are millions of miles of oil and gas pipelines already in existence and according to TransCanada CEO, pipelines are the safest way to transport oil and gas.

Will we see the Alaskan Pipeline project start soon? I sure hope so.

Shell Floating LNG Plant

The most recent big development in the area of natural gas exploration is the movement towards FLNG or floating liquefied natural gas, and Shell is leading the charge.  With the development of their Prelude project, Shell is poised to be the first company in the world to create a vessel or platform which can extract remote deposits of LNG according to Bloomberg.  The ability to tap additional reserves of LNG means not only advancement in the movement towards natural gas energy but further economic development for Australia and less environmental impacts.

The $10.8-12.6 billion project means constructing the largest vessel on Earth at a weight of 600,000 tonnes and a length nearly equal to that of the Empire State Building.  The construction of the hull began at Samsung Heavy Industries in South Korea in 2009 and the project is set to begin operation over the Prelude LNG reserve in 2015.  The vessel will be towed to the Prelude reserve after completion and moored at said location for 25 years.

Extracting LNG from remote deposits at sea has always been a sought after goal for natural gas companies but was never economical because locations were either too remote or the costs were astronomical with the amount of pipeline and energy it would take to get the LNG to coastal plants.  Thanks to groundbreaking technology however, scientists have found that by chilling the extracted LNG to -162 degrees Celsius, the volume of LNG can be shrunk by 600 times what it is in its natural state.  Thus allowing for enormous amounts of LNG to be shipped to mainland rather than pumped through pipelines.

The benefits for northwest Australia and Australia as a whole will be immense both environmentally and economically.  The permits to build LNG plants on land in Australia have become few and far between recently and with seven plants currently under construction, they will be even more rare to acquire.  In a sense, the LNG industry is capped at the moment in Australia with nowhere to expand to.  However with the arrival of FLNG plants, the gates are again open for companies to explore and tap previously inaccessible LNG reserves, meaning many more jobs for Australian workers and more money for Australia to tax.

Not only is the development of FLNG good for the Australian economy, it is also a more environmentally responsible means of natural gas extraction.  Thanks to the ability to condense the extracted LNG for transportation, pipelines are virtually eliminated in this segment of the market meaning that there is more LNG production with no more pipelines taking up land.  LNG plants are also more environmentally friendly because it again adds to LNG production while not needing land to be developed for roads, laydown areas, and accommodation facilities.

FLNG plants are becoming a significant part of LNG exploration. With their potential to provide more LNG, stimulate the Australian economy, and do so in a more environmentally responsible manor, this will likely become a much more popular form of exploration and extraction for companies around the world.

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