Exxon Mobil Backs Out of Proposed Alaska LNG Project
August 26 2016 - 10:29PM
Dow Jones News
By Chester Dawson
Exxon Mobil Corp. has decided not to invest in the next stage of
a proposed natural gas export terminal in Alaska and said it would
work with its partners to sell its interest in the project to the
state government.
The company's decision comes amid a global glut of natural gas
that has depressed prices and follows the release of a Wood
McKenzie report earlier this week concluding the Alaskan project
"is one of the least competitive" of proposed liquefied natural gas
plants worldwide.
A spokesman for Exxon said Friday that the company will no
longer invest in the proposal, which is "transitioning to a state
project." Exxon owns about one-third of the project, according to
the state.
Last November, the Alaskan government paid $65 million for
TransCanada Corp.'s 25% stake in the project , known as Alaska LNG,
which is expected to cost between $45 billion and $65 billion. It
has yet to be approved for construction and wouldn't start
commercial shipments before 2023, according to filings by its
corporate backers. The other backers, BP PLC and ConocoPhillips,
each hold roughly 20% stakes and have signaled that they, too,
could pull out.
Gov. Bill Walker has sought to advance the long-delayed project
by taking a direct stake through the state-owned Alaska Gasline
Development Corp. But Exxon and its corporate partners balked at
the government's efforts to start the next stage of the project --
an engineering and design study estimated to cost more than $1
billion -- in 2017 without a royalty and tax agreement.
An Exxon executive on Thursday told the Alaskan legislature's
joint resources committee that the company would pull out of the
project as an investor due in part to a "misalignment" between the
government and its partners, BP and ConocoPhillips.
Bill McMahon, a senior commercial adviser on the project,
testified that Exxon would no longer participate in the proposed
LNG plant but is open to supplying gas from the North Slope if the
state proceeds on its own.
Those comments were echoed by executives at BP and
ConocoPhillips in their testimony before the committee.
"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," said Darren
Meznarich, the company's project integration manager for Alaska
LNG.
Gov. Walker said in a statement on Thursday that he remains
committed to "exploring some of the alternate project structures
currently being investigated" that could allow the Alaska LNG to
proceed with construction.
Alaska LNG would transport natural gas from the North Slope
fields, then liquefy the fuel at the facility on Cook Inlet for
shipment to markets in Asia. But the proposal would be uneconomic
at current LNG prices or even crude oil prices under $70 a barrel,
according to energy consultancy Wood Mackenzie's report, which was
commissioned by Exxon, BP and the state's AGDC.
"The Alaska LNG project is one of the least competitive on a
cost of supply basis compared with other" proposed LNG export
terminals, Wood Mackenzie said.
Alaska LNG aims to produce as much as 20 million tons of LNG a
year, dwarfing the 1.2 million-ton capacity of Alaska's only
operating LNG facility, which was built in 1969 and is operated by
ConocoPhillips.
Write to Chester Dawson at chester.dawson@wsj.com
(END) Dow Jones Newswires
August 26, 2016 22:14 ET (02:14 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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