ANCHORAGE, Alaska (Reuters) - The chief executives of BP and ConocoPhillips, two of Alaska’s three major oil producers, said on Thursday that the only profitable way to exploit a vast but stranded quantity of Alaska’s North Slope natural gas is to export it to Asian Pacific markets.
In a dramatic change from decades-old plans to send North Slope natural gas to domestic U.S. markets by overland pipeline through Canada, the BP and ConocoPhillips CEOs said they will work with Exxon Mobil, the third major North Slope oil producer, to develop an LNG project that would export to Asia.
North American producers and LNG shippers are scrambling to develop export plans after a sudden surge in domestic natural gas production, thanks to shale gas, that swamped the market and pushed gas prices way below global levels.
BP CEO Bob Dudley and ConocoPhillips CEO Jim Mulva made the comments to reporters after an unprecedented meeting in Anchorage of the chief executives of all three major North Slope oil producers.
Dudley, Mulva and Exxon Mobil CEO Rex Tillerson held a two-hour meeting with Alaska Gov. Sean Parnell, then spoke at a larger closed-door meeting with state legislators and local business leaders. Dudley and Mulva spoke separately to reporters after the second meeting.
“My sense is liquefying the gas and marketing the gas is most economic, given where the resources are,” Dudley said. “It looks like (with) the economics today, given what has happened with shale gas in the Lower 48 and the high price of gas in Asia, that looks like the most economic way.”
“What we see is a strong, good Asian Pacific market and that’s where we think Alaska gas should go,” Mulva said.
Exporting Alaska natural gas as LNG to Asia “is the best alternative for commercializing Alaska North Slope natural gas. It’s certainly better than any alternative” for shipping gas to U.S. domestic markets, Mulva said.
An LNG project would require a pipeline shipping natural gas about 800 miles from Prudhoe Bay to a port in southern Alaska, such as the existing deepwater ports at Valdez in Prince William Sound or Kenai in Cook Inlet. It would require a plant at tidewater to liquefy natural gas and a fleet of LNG tankers to move the product.
Exxon, whose CEO Rex Tillerson also attended the meeting, said the parties are in early discussions on an export plan, but added that the pipeline plan through Canada is still under consideration.
The governor in October announced that he believed further efforts to build a pipeline shipping North Slope natural gas to U.S. markets might be futile. On Thursday, he said he has become more convinced since then that LNG exports to Asia represent Alaska’s best option to sell its abundant North Slope natural gas.
But TransCanada Corp. Vice President Tony Palmer, that company’s executive in charge of Alaska development, said he was not convinced that natural gas markets had changed permanently and that an overland pipeline to North American markets was no longer feasible.
While there is “no question” that natural gas prices are higher in Asian Pacific markets than in North American markets, things could change, said Palmer, who attended the closed-door meeting with legislators and community leaders.
“What will happen in 10 years is an open question, on both sides of the Pacific,” Palmer told reporters.
TransCanada and Exxon Mobil continue to pursue their plans for a 1,700-mile pipeline, though they have been unsuccessful in attracting shipper commitments, Palmer said.
Once expected to be a major importer, the United States now has up to a century’s worth of supply, prompting plans to ship the cheap fuel to thirsty markets in Europe and Asia where prices are up to five times higher.
Five projects across the United States and two in western Canada have applied for construction and export licenses, seeking long-term deals predominantly with buyers in Asia[ID:nS1E78P0MZ]
However, critics say that exporting gas may drive prices higher at home and discourage use of a homegrown resource.
TransCanada Corp and partner Exxon Mobil have been unable to win customers for the 1,700-mile natural gas pipeline they proposed building from Alaska’s North Slope to Alberta, at a cost of up to $41 billion.
BP and ConocoPhillips in May abandoned a rival natural-gas proposal for a similar route and similar delivery volumes after they also failed to attract shipping commitments.
TransCanada has also floated the concept of a line to the port of Valdez, which would move 3 billion cubic feet of gas a day and cost up to $26 billion.
Writing by Bill Rigby, additional reporting by Edward McAllister in New York; Editing by Steve Orlofsky, Bob Burgdorfer and Carol Bishopric