Alaska LNG faces competition from overseas

As shale gas transforms the North American energy market, Alaska may be missing a window of opportunity to ship liquefied natural gas to Asia. Market experts aren't certain what role Alaska's gas could play in a rapidly growing LNG economy, and questions linger about the likelihood of the federal government issuing new export permits. And as with a pipeline to the Lower 48, timing is key.

"The biggest thing that Alaska could do, including the government, is kind of get off the idea that the Lower 48 actually needs Alaska gas," said Jack Weixel, director of energy analysis for Colorado-based Bentek Energy, an energy market analysis firm. Instead of a pipeline to Canada, Weixel said, Alaska could start pushing a plan that looks to Asian LNG markets.

At the same time, he warned that Alaska had better get with it if a shift is called for. Weixel pointed to plans in British Columbia to export gas at Kitimat, and warned Alaska could get "out-flanked" by that plan. Even Kitimat faces threats from overseas; Business Week recently reported that Asian and Australian LNG supplies could hurt the project.

The idea of chilling Alaska's gas to a liquid form and shipping it to market -- most likely in Asia -- in tankers isn't a new one. The Alaska Gasline Port Authority has been working on such an option for years. But in recent weeks state leaders have placed new emphasis on plans to pipe Alaska's gas from the North Slope to Valdez or Nikiski.

With a state team spending millions to advance a gas pipeline through Canada, a number of leaders have come out in favor of lodging the state's full economic weight behind a different scheme. They say LNG exports could play another critical role beyond commercializing a resource. Exports could serve as an anchor for an instate natural gas pipeline -- either direct from the North Slope or from a big-line spur.

"I do believe that we're at crisis point now," former U.S. Sen. Ted Stevens told state lawmakers last week. "I think that there's no question that we have gas that could compete in the LNG market ... It's a voracious market."

Using charts credited to international energy analysis firm PFC Energy, Stevens pointed out that despite new developments around the world, supply and demand could be at odds globally by 2015, leaving Alaska's gas an in. Market analysts' opinions vary, though.

Ed Kelly, vice-president of North American gas and power for energy consulting firm Wood Mackenzie, said he's cautious about the prospects for Alaska LNG exports.

The likely market would be the Pacific Basin, which is rapidly becoming saturated with LNG from projects in Australia, Papua New Guinea, the Middle East and more. While costly, most of those projects don't have the added burden of an 800-mile pipeline between production fields and tankers, he said.

That doesn't rule out Alaska LNG finding ready buyers in China, Japan, Korea or Taiwan, among other places, he said. And while shale gas development is underway in energy-hungry China, the country's own resources aren't likely to eliminate the need for imported energy.

"It's intriguing in a sense," Kelly said. Profits from Pacific Basin sales could be relatively attractive to Alaska producers, compared to potential profits on gas sold to North American markets.

But Fadel Gheit, an energy markets analyst with international investment firm Oppenheimer & Co., said huge recent discoveries of gas such as those in Australia could beat Alaska's gas to market, pulling the plug on LNG exports.

"This Asia-Pacific area will have huge volumes of LNG coming in, and it will become very difficult for the Alaska gas to compete with that," he said.