Design Work to Start on New Alaska LNG Project

The state of Alaska and four energy firms have signed a joint-venture agreement to begin preliminary work on an 800-mile natural gas pipeline from the North Slope to a liquefied natural gas (LNGLF) (LNG) export plant, Governor Sean Parnell said Wednesday.

The agreement calls for partners to invest millions in so-called front-end engineering and design work over the next 18 months for the project, which could ultimately cost between $45 billion and $65 billion.

The agreement comes two months after the state's legislature backed Parnell's plan to work with North Slope leaseholders Exxon Mobil (XOM), ConocoPhillips (COP) and BP, plus pipeline company TransCanada (TRP) on a project development contract.

That contract will have to be ratified by the legislature and is still forthcoming, likely by the end of 2015.

Wednesday's agreement means all the partners are involved in field work currently under way, Parnell told Reuters.

"Real work is beginning now on engineering, design and environmental field work," Parnell said. "The state is now a full partner."

Gas could hit local and foreign markets and feed Asia's rising demand for LNG in the mid-2020s, according to the state's projections.

The state has a history of exporting natural gas from Cook Inlet to Asian markets dating to the 1960s.

Still, the state's efforts to market North Slope gas have been tripped up by market changes, such as the emergence of shale gas, and tied up in political battles between the legislature and executive branch.

That has changed, Parnell said, because of a stronger alignment among the partners.

"While many projects have faltered in the past, I am cautiously optimistic about this one because it's the first time in our history when all the necessary parties for a project are aligned, all the necessary parties are putting down their money and all have agreed to work together," he said.

ConocoPhillips spokeswoman Natalie Lowman called the agreement a "significant milestone."

A recent oil tax change helped make the LNG project more economical, BP spokeswoman Dawn Patience said.

"Alaska's oil tax change was critical to putting Alaska back into the game for an LNG project, since a healthy oil business is a prerequisite for gas commercialization," Patience said.

(Reporting by Steve Quinn; Editing by Terry Wade and Leslie Adler)