Homer Alaska - News

Story last updated at 11:05 AM on Thursday, February 10, 2011

Nikiski LNG plant to close

ConocoPhillips, Marathon to cease exports, mothball facility

By Molly Dischner
Morris News Service – Alaska


Photo By M. Scott Moon

The Arctic Sun takes on a load of liquified natural gas bound for Japan in 1998. The shipment was ConocoPhillip's 1,000th to leave the Nikiski dock

Employees at the Liquified Natural Gas plant in Nikiski were notified on Wednesday that the plant will be shutting down later this spring.

The plant is co-owned by ConocoPhillips and Marathon Oil, with ConocoPhillips operating the plant.

ConocoPhillips respresentative Natalie Lowman said the company employs 30 people directly and will work on helping them get jobs within the company.

"We'll definitely work with them to find opportunities for them," she said.

In a statement, Rep. Mike Chenault, R-Nikiski, said the loss of jobs would hurt the local economy.

"I can only imagine what this is doing for the workers there and their families, and those on the platform," he said. "I've gone to school with, know and represent today some of the families affected by today's decision. The plant offered 30-plus jobs, with another 30-plus on the platform. Those were high-paying, family-supporting wages. Gone."

Lowman didn't know if those opportunities would be on the Kenai Peninsula, elsewhere in Alaska or at the company's other locations throughout America and abroad.

Alaska Sen. Mark Begich, a Democrat, said in a statement that he was disappointed to hear the news about the plant closing.

"I am glad to hear ConocoPhillips will work to ensure these employees are quickly placed in jobs elsewhere," he said.

Lowman said the decision was a gradual one, made as the company tried to negotiate its contracts for the LNG it ships to Japan. The closure will also be gradual.

"We will be ceasing actual exports effective April or May of this year," Lowman said.

The closure will be a mothballing process, so it could be used again in the future if LNG demand warranted it, she said.

Lowman said the plant received needed license extensions last year, but was not able to get a satisfactory price for their LNG. Conoco Phillips has been producing LNG to ship to Japan for more than 40 years.

The Associated Press reported that Marathon Oil's Carri Lockhart said the "business case does not support continuing exports at this time."

The company will continue to produce natural gas from the Beluga and Tyonek fields to fulfill other natural gas contracts in Alaska, but Lowman didn't know if it would be producing the same quantity of gas.

"I think that there's some risk that production will go down," she said.

Lowman said it was too early to say whether the company will have more gas to sell to locally now that none is being shipped out of state. But the closure does reinforce the need for gas storage, Lowman said. The company has not signed on as a customer for the proposed Cook Inlet Natural Gas Storage Facility in the central Kenai Peninsula area, but supports gas storage efforts throughout the state, she said.

"We're definitely aware of the others that are seeking opportunities for gas storage," she said. "We certainly support that."

While not a storage facility per se, the plant has been a backstop for Southcentral utilities when gas wells in the area did not meet the peak winter demand during cold weather. Staying warm may be trickier without that fall-back, Chenault said in a statement.

"It's a sad day for the Inlet and our outlook," he said. "The problem now comes in the winter time when cold, dark days hit Southcentral and we can't supply gas that the plant saved as a back-stop."

Conoco Phillip's Dan Clark told The Associated Press that at its peak, about 64 billion cubic feet a year was exported. But volumes have been falling. He couldn't say what the most recent volumes were but said during 2010, the company went to using one ship when it previously had been running two.

In 2010, the company went to using one ship when it previously had been running two, he said.

Chenault said the planned closure highlights the need for gas development on the Peninsula, and elsewhere in the state.

"This, at the least, should serve as a wake-up call to Alaskans," he said.

Sen. Lisa Murkowski, a Republican, agreed.

"This announcement highlights the urgent need we face to find a way to commercialize our North Slope gas reserves and create the kind of economic growth that will keep families in Alaska," she said.

Molly Dischner is a reporter for the Peninsula Clarion.