Marathon gets extension on Kenai project amid global instability
Oil and gas company Marathon Petroleum said global instability is complicating its plans on the Kenai Peninsula.
It’s still aiming to turn a decades-old liquified natural gas export plant there into an import facility, so it can bring in fuel for its crude oil refinery down the road.
But it wants more time. Federal regulators granted a project extension yesterday, pushing the project deadline back to 2025.
The company said the future of the project hinges on finding a competitive fuel source — which in today’s market, is looking more challenging than ever.
Jason Feer, global head of business at Houston-based intelligence firm Potent and Partners, said Marathon is hardly the only business looking for cost-competitive natural gas. The war in Ukraine has created an unexpectedly high demand for it overseas.
“That has pushed prices up very high," he said.
And that complicates Marathon’s plans to start importing gas to the facility, near Nikiski.
The facility was previously an exporter of liquified natural gas — and, for five decades, the only one in North America.
As the global natural gas market became more competitive, then-owner ConocoPhillips mothballed the facility. Marathon took over ownership in 2018.
And a year later, Marathon subsidiary Trans-Foreland Pipeline applied to turn that export facility into an import one. Federal regulators told the company it had until December 2022 to do so.
But in a filing last month, the company told regulators it doesn’t expect to finish the project by then, “despite good faith efforts to do so.”
It said the global instability from the COVID-19 pandemic and the war in the Ukraine have given the company pause in making a decision about the project and its supply source. Feer said that instability is driven by increases in Europe’s demand for liquified natural gas as Russian suppliers cut back.
“So you’d think the next few years you’d see some pretty high LNG prices that would make new entrants into the LNG market really think twice about whether it’s competitive," he said. "And they would really have to dig into the details of how they’re going to use it and what it’s going to cost."
The imported liquified natural gas would likely be a source of fuel for Marathon’s own crude oil refinery, down the street, according to this and past filings.
But now it’s a question of where the company will get the gas from and whether it can get it at an affordable rate. And Feer said it might take three or four years, at least, for producers in the U.S. and Qatar to build up the capacity to meet the high global demand.
Still, the company said in its letter to the feds that it is confident the project is commercially viable and that it's looking for a supplier. “TransForeland has also been actively seeking suitable suppliers and is monitoring markets for LNG around the globe," it said.
Feer said it wouldn’t be too big of a lift for Marathon to convert the facility from an export to an import facility, since it already has a lot of the infrastructure and materials it needs in place.
That said, he said those costs aren’t inconsequential. And Feer said companies first want to make sure they can recover their investments before pumping money into a new project.