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Oil & Gas

Alaska Makes LNG Deal

January 08, 2008
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Energy companies ConocoPhillips and Marathon Oil Corp. reached an agreement with the state ensuring there will be adequate supplies of natural gas for years to come in southcentral Alaska, Gov. Sarah Palin announced Thursday.

According to the Associated Press, Palin said the agreement will benefit the state and its residents in several ways. Not only does it secure local needs but also requires that ConocoPhillips and Marathon -- the companies that have 70/30 ownership in the liquid natural gas plant on the Kenai Peninsula -- develop additional natural gas reserves in Cook Inlet.

In return, the state is supporting a two-year extension of the federal export license for the Nikiski plant. The plant converts about 150 to 200 million cubic feet of gas into LNG each day. All of it is sold to Japan. It is the only LNG export plant in North America.

The agreement also allows third parties the opportunity to use the plant to process their gas. The companies also have agreed to sell valuable seismic and well data to other companies looking to develop Cook Inlet''s large gas reserves.

The U.S. Department of Energy must still approve the export license. It would be effective through March 2011. The current export license expires in 2009.

The LNG plant, operational since 1969 and employing 58 people, contributes about $50 million in royalties and taxes to state and local economies.

Jim Bowles, president of ConocoPhillips Alaska Inc., said the agreement amounts to a new level of cooperation between the companies and the state. ConocoPhillips, Alaska''s largest oil and gas producer, is one of the companies that has submitted a proposal to build a natural gas pipeline from the North Slope at a cost of up to $32 billion.

ConocoPhillips has agreed to drill two new wells in Cook Inlet in 2008. Marathon will drill at least five.

The companies will make their well and seismic data available for sale to other interested parties. The agreement also requires them to negotiate with ENSTAR Natural Gas Co. and Chugach Electric Association Inc. to satisfy local gas needs.

If certain local gas supply milestones are not met, the companies will reduce exports.

They also have agreed to purchase natural gas from other producers when practical to produce LNG at the plant.

Cook Inlet contains potentially 13 trillion cubic feet of natural gas, considered by industry as a very substantial amount. The agreement provides an additional market for the gas, and therefore incentive for companies to develop it, said Kevin Banks with the state Division of Oil and Gas.
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