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Expert tells Alaska to get moving on pipeline if it wants to sell gas to Asia

Suzanna Caldwell

Uncertainty persists when it comes to the future of the worldwide liquefied natural gas development, but with Asian demand ramping up, development that happens sooner rather than later will be crucial in pursuing a North Slope natural gas pipeline.

That's according to Mikkal Herberg, a senior lecturer on international and Asian energy at the University of California-San Diego who spent 20 years working in the oil industry.

At an Alaska World Affairs Council luncheon in Anchorage Wednesday, Herberg broke down the international market, focusing on Asia, where the demand for natural gas has steadily increased over the last 20 years. With that demand expected to expand over the next 20 years, Alaska is in position to tap the market.

'Angst and agony'

“I don't have an answer if (Alaska's) LNG project can really make a go of it,” he said. “But I realize the angst and the agony of trying to market North Slope gas.”

A pipeline from Alaska's North Slope -- which if constructed is expected to deliver the trillions of cubic feet of natural gas known to exist beneath Alaska's northern coast -- has been discussed for decades. But conditions have changed.

As domestic shale gas drilling has boomed, the prospect of a Lower 48 gas shortage faded. That left Alaska looking to export one of its most abundant natural resources. And the big North Slope producers agreed.

Exporting natural gas is just one piece of a tricky Alaska energy situation. In southcentral Alaska, the state's population center, utilities are looking to import natural gas, despite trillions of cubic feet remaining undeveloped in the region. Utilities are warning customers, who have basked in relatively low energy prices for decades, that costs will rise once imports begin. In rural Alaska, electricity can cost up to 50 cents a kilowatt-hour and diesel fuel averages $6 a gallon.

A gas pipeline has been heralded as a way to help bring more affordable energy to Alaska, but it won't be built if the market isn't favorable to LNG.

Herberg noted that the Asian natural gas market is “extremely complicated.” Japan, a longtime natural gas importer, is looking to use more natural gas as it recovers from the 2010 tsunami and shutdowns of its nuclear power plants. China is looking to move away from its pollution-producing coal and oil. Even smaller Asian markets such as Thailand and the Philippines want to boost gas imports.

All those markets bring plenty of uncertainty, Herberg said. While public opinion in Japan is solidly against nuclear power (in September, the government announced it would phase out its nuclear reactors by 2040), future political leadership may have other ideas. A Russian gas line has been announced, but Herberg noted that almost nothing has happened in terms of moving that project forward.

Watch out for Australia

Australia is posed to enter -- and perhaps dominate -- the world natural gas market soon. With more than a half-dozen major LNG projects on horizon, the country is poised to become the world’s largest exporter of LNG, Herberg said.

Other regions to consider? Canada and East Africa, where sizable discoveries have been made in recent years.

Plus, the Lower 48’s “shale gas revolution” over the last five years has helped ignite plans for LNG export terminals in the Gulf of Mexico. A Panama Canal expansion will help ease the cost of delivery, but Alaska's proximity to Asian markets gives it leg up against other US options.

One benefit Alaskans could have in exporting is the use of American Henry Hub prices into Asian markets. Henry Hub is a distribution hub in Erath, La., for a natural gas pipeline system that interconnects nine interstate and four intrastate pipelines.  While some worldwide LNG prices are as high as $18 per thousand cubic feet, the Henry Hub price on Wednesday for the same amount was $3.77.  Even so, that Henry Hub spot price is up 22 percent in the last year.

“They're looking for a more competitive pricing system,” Herberg said of the Asians. “There's lots of pressure on contract prices coming down.”

Herberg said it will take strong partnerships between government and the oil companies to make an Alaska natural gas project come to fruition.

And with Australia's reserves expected to come online by 2016 -- years before any Alaska natural gas pipeline could be completed -- time will be crucial if Alaska is to remain competitive.

“Anything that moves that thing forward is probably a good thing,” he said. “... How can you go toward producing gas in less than a decade? It's hard to do -- but anything you do can be helpful.”

Contact Suzanna Caldwell at suzanna(at)alaskadispatch.com