Mat-Su port looks to potential Japanese LNG plant for salvation

WASILLA —  A proposed $1 billion liquefied natural gas plant to facilitate exports of Cook Inlet gas to Japan could rescue the foundering Matanuska-Susitna Borough port.

But industry observers say the Resources Energy Inc. project is far from certain.
If built, the REI facility could resuscitate a low-traffic port running deep in the red and facing more costly repairs with the discovery this week of major problems with a new anti-corrosion system.

As officials grapple with that discovery, the borough talked up a weekend visit to Port MacKenzie by a delegation of Japanese officials and businessmen from Maizuru and Kyoto, where REI is negotiating the particulars of regasification terminals.

A borough press release featured a video of Sunday's port tour showing the Maizuru mayor extolling the virtues of the project.

"I was very impressed by the size of the port as well as the depth of the area that the ships can dock here," Mayor Ryozo Tatami said through an interpreter. "As far as the overall, I'm very impressed. There is great potential for this port."

REI was established in 2011 for the Alaska-Japan LNG connection, with offices in Anchorage, Honolulu and Tokyo. The venture reflects Japan's shift away from nuclear power in the wake of the devastating earthquake that year that led to a nuclear disaster at Fukushima.

'Rotten time in the industry'

But industry watchers say continued low natural gas prices make the project a long shot — as they do the much larger project backed by major oil producers to bring natural gas from the North Slope to an LNG facility on the Kenai Peninsula.

"I wouldn't bank on this, just like the Kenai Peninsula Borough is not banking on AKLNG to go ahead any time soon," said Larry Persily, the Kenai borough's special assistant on oil and gas and former coordinator in the federal office for Alaska gasline projects. "It's just a rotten time in the industry and a tough time with low oil and gas prices to make billion-dollar or larger commitments because you think the market is going to improve."

The big pipeline and the Mat-Su project aren't in conflict, Persily said, unless both are built at the same time and pull from Alaska's limited number of skilled workers.

Kenai residents don't seem worried about the Mat-Su project but those within the global LNG industry look at REI skeptically, he said. "Construction in Alaska is expensive. It's a small plant, so you don't get the economy of scale."

Port rescue

The plant could singlehandedly shore up the Mat-Su port, borough officials say.
A single barge is the only vessel to call at the port so far this season with only 10 more expected through August, according to port director Marc Van Dongen. The barge dock needed $2.2 million in repairs this year, though that's lower than the $3 million it was expected to cost.

Now the port has a new problem.

Van Dongen on Wednesday said five of eight underwater anode sleds installed last year in a $580,000 project aren't working, a discovery first made in April and confirmed in May. Anode sleds are part of a system that emits low-level electrical current to battle saltwater corrosion on the port's deep-water and barge docks.

It's cost the borough $187,000 so far to start pulling the 6,000-pound devices off the floor of Knik Arm. The sleds are still under warranty, but it's unclear who will fund the cost of any repairs: designer Norton Corrosion; installer Global Diving; or the borough, if the failure is found to be the borough's fault. Crews are expected to remove the sleds the week of June 20.

Long look

REI has been looking at Alaska, and the Mat-Su port, for several years.

The Port MacKenzie project would involve a liquefaction plant and two storage tanks, as well as a new dock at the port and a 12-mile pipeline to bring gas from an existing Enstar line to the facility, according to Brian Murkowski, hired last year as REI's vice president of government and regulatory affairs. Murkowski, a consultant with about 20 years of experience in the oil and gas industry, is the son of former Alaska Gov. Frank Murkowski and brother of U.S. Sen. Lisa Murkowski.

The facility as planned is relatively small with options to expand: 1 million tons a year or 160 million cubic feet of natural gas per day, he said. It could create at least 200 jobs during construction, and about 20 permanent positions.

The company hopes to make a final engineering decision — "a go or no-go" — by late summer.

"It's not 100 percent that this is going to go forward," Murkowski said.

Unresolved questions

REI is negotiating with Inlet producers to bring natural gas ashore and put it into the Enstar line. The company is also negotiating with the two Japanese cities for regasification terminals at each of them.

Yes, there is an oversupply of natural gas in the Pacific Rim now, Murkowski acknowledged. REI is hoping to see more demand after 2021 or 2022. The company expects "first gas" in 2020 or 2021, he said.

REI doesn't plan to seek public funding but may approach the public-state Alaska Industrial Development and Export Authority to help finance the dock, he said.

REI is currently considering a private parcel south of the port but Van Dongen is meeting with consultants Friday in hopes the company will instead look to lease 114 acres of port property.

He didn't want to disclose the estimated revenue to the borough from lease payments, facility taxes or wharfage and dockage.

The company and the borough signed a Memorandum of Understanding in March that limits any other leases on the 114-acre parcel for 140 days, until REI makes the final decision.

Van Dongen said Borough Manager John Moosey has agreed to offer a lease amount no higher than the borough taxes REI would pay on the private parcel.