OREANDA-NEWS. January 26, 2017. The state of Alaska may be negotiating to buy the existing Kenai LNG export terminal to tie that small facility to the proposed massive Alaska LNG project, according to legislative testimony.

Houston-based ConocoPhillips in November said it wants to sell its 48-year-old Kenai terminal in Nikiski, on Alaska's south-central coast. The move likely is driven by an oversupplied global LNG market and low oil prices that are squeezing the economics of LNG exports.

Alaska LNG, being developed by the state-owned Alaska Gasline Development Corporation (AGDC), is proposing to build a terminal on a 600-acre site in Nikiski, close to Kenai but not contiguous with it.

In a 23 January hearing, Alaska Senate resources committee chair Cathy Giessel asked if AGDC "is exploring or proceeding with the purchase" of Kenai LNG.

AGDC officials declined to directly answer, but said such an acquisition would benefit Alaska LNG. AGDC earlier this month became the sole developer of Alaska LNG after producers ExxonMobil, BP and ConocoPhillips withdrew because of its high costs.

When asked, AGDC senior vice president Frank Richards said he was "not aware of any confidentiality agreements we may have signed with ConocoPhillips." He then directed the question to Alaska LNG vice president Fritz Krusen, who said a possible acquisition "is kind of a touchy subject, but there a lot of ways where the ConocoPhillips plant would help the Alaska LNG mission."

Those benefits would include earlier production that would bring quicker revenues to the state, the potential to use existing infrastructure and expand Kenai LNG, more waterfront property and "immediate standing" with potential LNG customers and the US Federal Energy Regulatory Commission (FERC), Krusen said.

"I think I'd rather not say yes or no, are we pursuing an acquisition?" he said. "But there are a lot of ways it fits the Alaska LNG mission."

ConocoPhillips declined to say if AGDC is negotiating to buy the facility, only saying that "interested parties are currently reviewing the data room material and we anticipate receiving bids later this year."

Kenai, which has capacity of 1.5mn t/yr, equivalent to 200mn cf/d (5.7mn m?/d) of gas, did not export any cargoes in 2016 as global LNG prices slumped. It exported six cargoes in 2015 to Japan and Taiwan. Kenai uses gas from the adjoining Cook Inlet.

Alaska LNG would monetize stranded North Slope gas by building an 800-mile pipeline (1,290km) pipeline to Nikiski. The terminal, which would have capacity of 20mn t/yr from three liquefaction trains, is scheduled to come on line in 2025-26, but it is unclear if that timeline is viable.

AGDC is the sole party still in the FERC permitting process for Alaska LNG, which has an estimated cost of about \\$45bn. AGDC is negotiating with the producers to increase its share in Alaska LNG to 100pc from 25pc, but the sale of the project site and other assets have not been finalized.

The producers funded their share of \\$500mn in preliminary engineering studies, but balked at the state's insistence on committing to spend an additional \\$1bn-\\$1.5bn beginning this year for detailed engineering.

AGDC does not plan to fund detailed engineering on its own and is looking for partners. It plans to pursue a tolling model under which customers would sign long-term leases for pipeline and liquefaction capacity. Customers could be the North Slope producers or Asian buyers.

State ownership could reduce costs by allowing for a lower rate of return than private companies would accept and by reducing taxes.