Exxon Backs Out of LNG Project in Alaska

Exxon Mobil Corp. (NYSE: XOM) has opted to pull out of the proposed Alaska natural gas export terminal. The energy corporation decided not to invest in the next stage of the mentioned project and noted that it would collaborate with its partners for the selling of its interest in the Alaska LNG project to the state government.

Exxon Mobil’s decision comes on the back of a global natural gas oversupply, which has weighed down on the commodity’s price, and also after the release of the report by the research company Wood Mackenzie pointing out that the LNG project in Alaska “is one of the least competitive” all over the world.

Last Friday, a spokesman of the energy company stated that Exxon will no longer invest in the project, which is “transitioning to a state project.” Approximately one-third of the entire Alaska LNG project was owned by Exxon Mobil.

During the month of November last year, the government of Alaska paid around $65 million for the 25 percent stake of TransCanada Corp. in the Alaska LNG project, which is anticipated to be valued at approximately $45 billion to $65 billion. According to the filings by the project’s corporate backers, Alaska LNG has not yet obtained approval for construction and would not begin commercial shipments before the year 2023. ConocoPhillips and BP PLC, which also serve as backers of the project, hold approximately 20 percent stake each and have hinted that they may back out as well.

Gov. Bill Walker has attempted to advance the LNG project by taking a direct stake through Alaska Gasline Development Corp—a state-owned company. However, Exxon Mobil and its partners hesitated over the government’s push to start the next stage of the Alaska LNG project in the following year without a tax and royalty deal.

A senior commercial adviser Bill McMahon confirmed that Exxon Mobil would no longer participate in the proposed project, but is open to providing gas from the North Slope if the state pushes through independently.

According to ConocoPhillips’ project integration manager Darren Meznarich, “ConocoPhillips is unlikely at this point to agree to directly participate in the FEED for the project in 2017 due to the significant economic headwinds and other challenges.”

Also last Thursday, Gov. Walker stated that he stays committed to “exploring some of the alternate project structures currently being investigated”, which could allow the advancement of the construction of Alaska LNG.

Under this project, natural gas would be transported from the North Slope and then liquefied at the Cook Inlet facility for shipment to Asian markets. However, the report of Wood Mackenzie pointed out that the proposed Alaska LNG project appears uneconomic at present prices of LNG or even oil prices of lower than $70 per barrel.

According to the energy consultancy firm, “The Alaska LNG project is one of the least competitive on a cost of supply basis compared with other proposed LNG export terminals.”

Alaska LNG’s target is to generate up to 20 million tons of LNG per year—much greater than the capacity of the only operating LNG facility in Alaska. This facility has a capacity of 1.2 million tons, was established back in 1969 and is operated by ConocoPhillips.

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