April 11, 2005

Alaska LNG ship proposal moves forward

A plan to ship Alaska North Slope LNG to the U.S. West Coast via ship is moving forward and a U.S. maritime union is playing a part in trying to get an exemption from the Jones Act requirement to build the needed LNG tankers in the U.S.

On April 1, 2005, the Alaska Gasline Port Authority filed an offer for purchase of natural gas from the North Slope of Alaska with the North Slope producers (Exxon Mobil, ConocoPhillips, BP, Chevron Texaco, Forest Oil) and the State of Alaska.

The producers and Transcanada have been proposing plans to bring North Slope gas to the lower 48 via a new piepline to Canada.

The Alaska Gasline Port Authority has an alternate proposal to build an 800 gas pipeline in parallel with the existing oil pipeline from the North Slope to Valdez. There the gas would be liquefied then transported to the U.S. West Coast via LNG carriers. In December the port authority said it had signed an agreement with Sempra LNG, a unit of San Diego-based Sempra Energy, to assist in developing the project and to market the related LNG.

What would seem to be an obstacle to this plan would be the high cost of building the required ships in the U.S. in accordance with Jones Act requirements.

In fact, the port authority's offer to purchase the North slope gas, indicates that prior to liquefaction of the methane component of the gas, the propane and butane would be stripped out to be sold as LPG. The LPG would be shipped to "the best markets available in Asia, or the United States. Currently, the premium market appears to be Japan."

The offer document says that "the Project requires a waiver from the Jones Act for the construction portion of the ships. The Project includes costs of ships being U.S. flagged and crewed. However, U.S. shipyards cannot deliver on time and at sufficiently competitive prices for the modern larger membrane containment ships necessary for the Project to be successful. AGPA and Sempra Alaska have executed an MOU with the Marine Engineers' Beneficial Association ("MEBA") for cooperation in the pursuit of an exemption from the construction portion of the Jones Act for Project LNG ships. Both LNG and LPG ships carrying product to domestic ports would be US crewed and US flagged. The LPG ships would also be U.S. built."

So far as the LNG ships are concerned, the offer document indicates that the project would require eight 160,000 cu.m diesel powered ships at a price of $220 million apiece.

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