Thanks to developments in LNG exporting, Alaska may soon return to its energy glory days. And that's good news for investors looking for LNG stocks today.
Alaska's oil production peaked at more than 2 million barrels a day in 1988. That figure dropped to 531,000 barrels a day in 2013. Now projections call for a drop to 312,000 barrels a day within the next 10 years.
Alaska Governor Sean Parnell is doing something about it. He's injecting $5.25 billion into an LNG project, headed by ExxonMobil (NYSE: XOM) that promises to put Alaska in the forefront of U.S. energy again.
Alaska's natural gas resources are estimated to be as much as 236 trillion cubic feet.
And LNG exporting is the most effective way to monetize those resources.
Alaska's Natural Gas Riches
Alaska has an abundance of natural gas waiting to be exploited. It's stranded on Alaska's North Slope and is largely untapped since the 1968 discovery of the Prudhoe Bay oil field. The gas is located near the Prudhoe Bay fields and the gas-rich Point Thomson region.
Alaska's North Slope has proven reserves of 35 trillion cubic feet of gas.
The state does currently produce natural gas - the equivalent of about 1.5 million barrels of oil a day. But almost 90% of that natural gas is re-injected back into the fields because there is no existing way to get that gas to consumers.
That's where this new LNG project comes in...
Alaska's $54 Billion LNG Exporting Project
A final investment decision on the project is set for 2016.
The odds of the project going ahead were boosted by Governor Parnell's decision to pay $5.75 billion in return for a 25% stake in the liquefaction plant. The state may also get a share of the pipelines since it provided TransCanada $300 million to offset costs.
The project is estimated to cost around $45 billion, and the liquefying plant accounts for about $23 billion. The plant should ship 18 million metric tons of LNG yearly.
The 800-mile pipeline from the North Slope to the plant on the Kenai Peninsula may cost an additional $22 billion.
The final bill will likely be higher, however.
A study conducted by infrastructure research firm Black & Veatch determined a final price of $54 billion for the project. The companies involved told the state in February 2013 that the cost may be as high as $65 billion.
Alaska must come up with roughly 10% of the project cost upfront.
Another positive for the project is that North Slope gas is widely recognized as "stranded." That means exports to Asia should not be seen by U.S. government regulators as diverting supplies from U.S. consumers.
Asian LNG Interest Boosts Project
If all proceeds as planned, the facility will begin LNG exporting in 2021.
The two largest global buyers of LNG, Japan and South Korea, have already indicated a strong interest in making future purchases.
In September 2012, the state of Alaska signed an agreement with the Japan Bank for International Cooperation (JBIC) to look into natural resource exports from states with an emphasis on LNG.
The Bank has been closely involved in all of Japan's major LNG projects, most recently in Australia.
With low transportation costs from Alaska, JBIC says it expects LNG from Alaska to be in the $7.31 to $8.58 per million BTU range. That's a far cry from the more than $16 per million BTU Japan is paying now.
South Korea has also shown interest in the project. Its national natural gas company, Korea Gas or KOGAS, is thinking of investing in the project. Both Alaskan officials and company executives have visited the headquarters of KOGAS in recent months in an effort to reach an agreement.
Because the project is so expensive, the parties involved can't assume a "build it and they will come" mentality. Interest from Asian buyers at this early stage is a crucial factor for the project moving forward.
But if things go right, the project will bring back Alaska's lost energy glory.
It's also good for investing in LNG stocks today. These companies involved in exporting LNG are already some of the best LNG stocks to buy, and the Alaska project is another reason to be bullish on all LNG stocks in 2014.
Do you own any LNG stocks or are you looking to invest in LNG? Let us know on Twitter @moneymorning using #LNG.
There are huge profits to be made in the biotech sector, but you need to know this one thing before investing in biotech stocks...
- Financial Times:
Oil Groups Agree on Alaska Gas Project
- The Wall Street Journal:
Alaska to Invest in Natural Gas Project
Alaska to Pay $5.75 Billion for Exxon LNG Export Project Stake
Alaska Deal with Japan's JBIC Offers Hope for LNG Exports
- Alaska Journal:
KOGAS Keeping an Eye on Alaska LNG Project Developments