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ConocoPhillips shuttering Kenai LNG plant

Patti Epler

ConocoPhillips says it will mothball its Nikiski liquefied natural gas plant as soon as April, laying off about 60 company employees and contract workers.

The company told employees of its decision Wednesday rather than making a formal announcement, according to ConocoPhillips spokeswoman Natalie Lowman.

But word spread quickly through the community which has suffered other economic downturns in recent years, reaching lawmakers in session in Juneau.

The closing of the plant didn't go over well at the state Capitol, where lawmakers learned of it late Wednesday afternoon through friends, staff and constituents.

"It's a sad day when we shut down an export facility knowing that we have 35 known (trillion cubic feet) of gas on the North Slope that's just 800 miles away and one of the things we're looking at is importing LNG from some foreign country," said House Speaker Mike Chenault.

The ConocoPhillips plant is "right down the street" from the Nikiski Republican's house and he grew up with many of the workers who will lose their jobs, he said.

"I can only imagine what their families are going through," Chenault said from his Juneau office Wednesday evening.

The plant has been a mainstay of the Kenai Peninsula community for more than 40 years. Lowman said at its peak it shipped 64 billion cubic feet of gas a year to Asian markets, primarily Japan. But in recent years shipments have dwindled as other supplies of LNG have flooded the Pacific Rim and the company has only been sending out a single ship.

The Nikiski plant recently received an extension from the federal government for its export license allowing shipments through 2013. But Lowman said the license was contingent on getting contracts and the contracts just weren't there.

"LNG market conditions have deteriorated so continued operation of the facility for export was not economically feasible," she said. "There's a glut of LNG in Asia right now."

Natural gas production from the company's Tyonek and Beluga facilities will continue and the company will continue to supply natural gas to Southcentral utilities, she said, adding that it was too early to say whether supplies to the local utilities might increase given that some gas would no longer be exported.

The Nikiski facility is not being abandoned but simply mothballed, she said, and the company intends to keep it in good shape so that it could one day be reopened as an export facility or reconfigured and turned into an import plant.

Utilities and state natural gas experts have recently been studying the idea of importing LNG to make up for shortfalls in natural gas that are predicted to occur as soon as 2013.

The liquid gas would have to be "regasified" for use in the utilities' generators and one plan that has been talked about involves using the Nikiski plant for that purpose.

The Railbelt has long depended on plentiful supplies of relatively cheap natural gas for electricity and heating. And gas reserves are still thought to be fairly large. But production has been falling because the price of gas was so low that companies didn't deem it economically viable to sink new exploratory wells and bring new fields into production.

Now the scramble is on to bring more natural gas to the Railbelt, either from the huge North Slope reserves or new Cook Inlet production that the state is trying to spark with tax credits and other incentives. But energy experts say any new projects that might be launched wouldn't come on line in time to save the region from a gas shortfall expected to hit in 2013. Importing LNG is a reality, they say.

Sen. Bill Wielechowski, an Anchorage Democrat who has specialized in energy issues, says the "silver lining" in the closure of the Nikiski LNG export facility is that it will free up more gas for Southcentral.

"It's a pretty significant amount of gas that I think will help alleviate some of the problems we're projecting for Southcentral," he said.

But the problem, Wielechowski and Chenault say, is the "deliverability" of the gas in winter when the utilities need it most. There is currently no storage facility that allows the companies to produce extra gas in the summer and store it for the winter when utility loads are highest and often spike on the coldest days.

Chenault said the Nikiski plant was a "thermos bottle so to speak" because when the utilities needed extra gas to keep the lights on in Railbelt homes and businesses, they could draw on supplies that were going to the plant.

"The LNG plant provided that backstop on those cold winter days," Chenault said.

Both Chenault and Wielechowski anticipated that the Legislature would take a close look at what happened in Kenai and the implications for other issues.

Wielechowski said he thinks the plant closure will surface in the debate over whether to revamp Alaska's oil tax structure because of the lessons to be learned about tax credits and incentives and whether they really help promote more investment and production. He noted that Cook Inlet gas producers have very low taxes and the state subsidizes 65 percent of the expenditures in Cook Inlet yet the plant was deemed to be uneconomic.

"I think what it says is there's a lot more to the oil and gas business than just taxes," he said.

Chenault said he has asked the House Resources Committee chairman to "dig into" the situation ConcocoPhillips was facing with the LNG exports, the administration's role and what the state has done or could have done to help keep the plant in business.

Gov. Sean Parnell issued a prepared statement through his spokeswoman regarding his focus on helping the displaced workers. "While we understand the LNG export market to Japan is a tough one, our first concern is for the Alaskan families who have lost jobs," the governor said. He added that the state Department of Labor will be working with the company and the community to assist with job information and referrals.

U.S. Sen. Lisa Murkowski also issued a statement expressing concern for the workers and underscoring her oft-repeated theme of the need to break open new development on the North Slope.

"The closure of the LNG plant will leave a huge hole in Kenai's economy and my first thought is for the employees and their families, many of whom are wondering what they're going to do now," Murkowski said. "This announcement highlights the urgent need we face to find a way to commercialize our North Slope gas reserves and create the kind of economic growth that will keep families in Alaska."

Chenault said the community is still suffering from the closure of the Agrium fertilizer plant three years ago that took about 300 jobs.

"It's bad news upon bad news. Over the past few years, to take that amount of jobs out of a community our size."

He pointed out the ripple effect that begins with money spent by the company and the workers in the community and carries through to donations to local civic groups and charities.

"This is not a very good day for the state," Chenault said.

Contact Patti Epler at patti@alaskadispatch.com.