Facing global gas glut, ConocoPhillips to mothball Kenai LNG plant

The Feb. 2, 2008 file photo shows the ConocoPhillips LNG facility in Nikiski. The company plans to mothball the facility in the fall of 2017. (Photo courtesy of the Peninsula Clarion)

Last year, ConocoPhillips announced that it wanted to sell its liquefied natural gas plant on the Kenai Peninsula. The company hasn’t yet found a buyer. Now, a company spokesperson said it’s going to save expenses by mothballing the facility this fall.

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It’s the last piece of infrastructure that ConocoPhillips owns in Cook Inlet. And they’re getting closer to shutting it down.

The Kenai LNG facility is up against a world market that’s awash in natural gas.

“Most people are fairly aware of the fact that worldwide the price of oil and gas has been low,” ConocoPhillips Senior Communications Specialist Amy Burnett said.

Generally, ConocoPhillips is doing well in the oil business in Alaska. The company announced earlier this year a new discovery that could yield up to 100,000 barrels a day in Prudhoe Bay.

But it has struggled to make money in the LNG export market.

“Over the last few years, more facilities have come online to export LNG,” Burnett said. “So there are more sources available for the product which makes competition more difficult.”

And the plant has been on hold for awhile.

“Our last export was actually…in the fall of 2015 and since that time the plant has been in a cold shutdown mode,” Burnett said.

That cold shutdown mode means the plant isn’t exporting any LNG, but could restart shipments relatively quickly. But keeping the tanks cold costs money, because they have to buy the gas they need to keep them full.

The plan is to let those tanks warm up by leaving them empty.  And that means ConocoPhillips will save some money.  But it also means that it will take longer — and cost more — to bring the plant back online.

And some people may lose their jobs.

“It’s too soon to say actually what that’s going to look like. There are about 18 ConocoPhillips employees who may be impacted by the change,” Burnett said.

That’s just over half of the employees currently working at the facility.

Larry Persily, Chief of Staff for the Kenai Peninsula Borough, said if the company does scale back its operations it will have an impact beyond the potential loss of 18 jobs in the Peninsula communities.

“It’s also a hard reminder to Alaskans that no matter how much we want to sell our oil and gas, if the market doesn’t want it, doesn’t need it or isn’t willing to pay a price to make it profitable — we can’t sell our oil and gas,” Persily said.

Prices have tumbled from $15-$18 per million btu, to just over $5.

“You can’t buy gas out of Cook Inlet, pay to liquify it, burn up some of it while you’re liquefying it, put it in a tanker and deliver it for $5.50 per million btu and make money,” Persily said. “It is a[n] inhospitable market and will be for the near future.”

The glut in the global LNG market is a roadblock in the state’s efforts to market and build a pipeline to get Prudhoe Bay’s enormous reserves to market.

And the financial future of that project — the Alaska LNG project — has been in question for awhile.

The legislature briefly considered cutting $50 million in funding from the state corporation tasked with developing that project.

Rep. Mike Chenault, R-Nikiski, said lawmakers ultimately decided to leave the funding in the budget in part because the glut won’t last forever.

“I don’t know if [Alaska LNG would] ever be viable in the current market. But markets change. And sometimes they change drastically as we well know with the price of a barrel of oil or the price of a cubic foot of gas,” Chenault said.

Burnett said the company is still negotiating with potential buyers. But, she wouldn’t say who those buyers were or how those negotiations were going– she said they’re confidential.

In January, the state’s gasline corporation disclosed that it was considering the purchase.

But any new buyer would need to get a federal export license if it wanted to sell gas to foreign markets — the company’s current license expires in February of 2018.

Rashah McChesney is a photojournalist turned radio journalist who has been telling stories in Alaska since 2012. Before joining Alaska's Energy Desk , she worked at Kenai's Peninsula Clarion and the Juneau bureau of the Associated Press. She is a graduate of Iowa State University's Greenlee Journalism School and has worked in public television, newspapers and now radio, all in the quest to become the Swiss Army knife of storytellers.

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