Phillips Alaska Natural Gas Corporation and Marathon Oil Company; Application to Amend Authorization To Export Liquefied Natural Gas

DEPARTMENT OF ENERGY

Office of Fossil Energy

[FE Docket No. 96-99-LNG]

Phillips Alaska Natural Gas Corporation and Marathon Oil Company;

Application to Amend Authorization To Export Liquefied Natural Gas

AGENCY: Office of Fossil Energy, DOE.

ACTION: Notice of application.

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SUMMARY: The Office of Fossil Energy (FE) of the Department of Energy

(DOE) gives notice of receipt of an application filed on December 31,

1996, by Phillips Alaska Natural Gas Corporation (PANGC) and Marathon

Oil Company (Marathon) requesting that DOE approve a five-year

extension of their long-standing authorization to export Alaskan

liquefied natural gas (LNG) from Alaska to Japan. The gas would be

liquefied at the applicants' Kenai LNG plant in the Cook Inlet area of

Alaska and would be transported by tanker to Japan for sale to Tokyo

Electric Power Company, Inc. (Tokyo Electric) and Tokyo Gas Company,

Ltd. (Tokyo Gas).

The application is filed under section 3 of the Natural Gas Act and

DOE Delegation Order Nos. 0204-111 and 0204-127. Protests, motions to

intervene, notices of intervention, and written comments are invited.

DATES: Protests, Motions to intervene or notices of intervention, as

applicable, requests for additional procedures and written comments are

to be filed at the address listed below no later than 4:30 p.m.,

eastern time, April 3, 1997.

ADDRESSES: Office of Natural Gas & Petroleum Import & Export

Activities, Office of Fossil Energy, U.S. Department of Energy,

Forrestal Building, Room 3F-

[[Page 9759]]

056, FE-50, 1000 Independence Avenue, S.W., Washington, D.C. 20585.

FOR FURTHER INFORMATION CONTACT:

Patrick J. Fleming, Office of Natural Gas & Petroleum Import & Export

Activities, Office of Fossil Energy, U.S. Department of Energy,

Forrestal Building, Room 3F-056, FE-50, 1000 Independence Avenue, S.W.,

Washington, D.C. 20585, (202) 586-9387

Diane Stubbs, Office of Assistant General Counsel for Fossil Energy,

U.S. Department of Energy, Forrestal Building, Room 6E-042, GC-40, 1000

Independence Avenue, S.W., Washington, D.C. 20585, (202) 586-6667.

SUPPLEMENTARY INFORMATION:

Background

PANGC, a Delaware corporation with its principal place of business

in Bartlesville, Oklahoma, is a wholly owned subsidiary of Phillips

Petroleum Company, a Delaware corporation. Marathon, an Ohio

corporation with its principal place of business in Houston, Texas, is

a wholly owned subsidiary of USX Corporation, also a Delaware

corporation. PANGC and Marathon are not affiliated with each other.

The LNG export authorization held by PANGC and Marathon was granted

originally by the Federal Power Commission (FPC) on April 19, 1967. It

was subsequently amended by DOE's Economic Regulatory Administration in

1982, 1986, 1987, and 1988, and by FE in 1991, 1992, and 1995. PANGC

and Marathon are currently authorized to export up to 64.4 trillion Btu

(approximately 64.4 billion cubic feet (Bcf)) of LNG per year through

March 31, 2004. See FPC Order No. 1227 (37 FPC 777, April 19, 1967);

DOE/ERA Opinion and Order No. 49 (1 ERA para. 70,116, December 14,

1982); DOE/ERA Opinion and Order No. 49A \1\ (1 ERA para. 70,127, April

3, 1986); DOE/ERA Opinion and Order No. 206 (1 ERA para. 70,128,

November 16, 1987); DOE/ERA Opinion and Order No. 261 (1 ERA para.

70,130, July 28, 1988); DOE/FE Opinion and Order No. 261-A (1 FE para.

70,454, June 18, 1991; DOE/FE Opinion and Order No. 261-B 2 (1 FE

para. 70,506, December 19, 1991); DOE/FE Opinion and Order No. 261-C (1

FE para. 70,607, July 15, 1992); and DOE/FE Opinion and Order No. 261-D

(1 FE para. 71,087, March 2, 1995) (herein collectively referred to as

Order 261).

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\1\ In ERA Opinion and Order No. 49A the authorization

previously granted to Phillips Petroleum Company to export LNG was

transferred to Phillips 66 Natural Gas Company effective January 1,

1986.

\2\ In DOE/FE Opinion and Order No. 261-B the authorization

previously granted to Phillips 66 Natural Gas Company to export LNG

was transferred to PANGC effective December 19, 1991.

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PANGC and Marathon request that FE amend the export authorization

granted by Order 261 to approve the continued exportation of LNG for an

additional five years commencing April 1, 2004, and extending through

March 31, 2009, using existing facilities. During the five-year

extension, the natural gas to be exported would be produced from gas

fields owned or controlled by PANGC and Marathon in the Cook Inlet area

of Alaska. The natural gas would be manufactured into LNG at the

existing liquefaction plant near Kenai, Alaska.3

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\3\ The Kenai LNG plant is owned by Kenai LNG Corporation, 70

percent of which is owned by PANGC and 30 percent by Marathon.

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The pricing and other provisions in the applicants' current LNG

sales contracts with Tokyo Electric and Tokyo Gas would remain the same

during the extension period. Order 261 authorizes a market-sensitive

pricing formula under which the monthly selling price per MMBtu of LNG

exported to Japan by PANGC and Marathon is adjusted each month

according to changes over a period of three months in the selling price

of all crude oils imported into Japan as reported in Japan Exports &

Imports Monthly which is edited by the Customs Bureau, Ministry of

Finance, and published by the Japan Tariff Association.

PANGC and Marathon and the Japanese buyers of the LNG have held

discussions concerning the LNG purchase and sale to facilitate planning

their respective operations. Pursuant to such discussions, the Parties

negotiated and executed a Letter Agreement dated May 17, 1993, attached

as Appendix A to the application, in which the Parties agreed to the

contract extension. The extension is subject to PANGC and Marathon

providing written acceptance of such extension to Tokyo Electric and

Tokyo Gas on or before March 31, 2001.

Public Interest Considerations

In support of their application, PANGC and Marathon state there is

no evidence of domestic need, either regional or national, for the

natural gas they would export during the proposed extension. According

to the applicants, the Cook Inlet area of Alaska continues to have an

oversupply of natural gas and, based on two studies submitted with

their application, PANGC and Marathon conclude estimates of remaining

gas reserves in Alaska, and the Cook Inlet area in particular, are

adequate to supply local and regional need beyond the 2004-2009

extension period.4 Applicants project that under the more

pessimistic of the two scenarios examined, the low supply/high demand

scenario, remaining reserves would exceed 1.2 trillion cubic feet (Tcf)

at the end of 2009, a figure that climbs to 2.0 Tcf under the expected

and less conservative supply/demand scenario.

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\4\ See Resource Decisions, Economic Analysis of Regional and

Local Interest Relating to Kenai LNG Export to Japan (December 11,

1996) included as Appendix C to the application of PANGC and

Marathon filed December 31, 1996; Schlumberger GeoQuest Reservoir

Technologies, Proven Reserves Assessment Cook Inlet Alaska Effective

January 1, 1996 (March 1996) included as Appendix D to the

application of PANGC and Marathon filed December 31, 1996.

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With respect to national need, PANGC and Marathon state that gas

supplies in the lower 48 states are sufficient to meet demand and under

existing economic conditions LNG could not be shipped to the lower 48

at market clearing prices. The applicants emphasize there are no

existing or anticipated West Coast LNG receiving terminals and the cost

of shipping Kenai LNG to terminals on the East Coast of the lower 48

makes that alternative improbable. Furthermore, PANGC and Marathon

state there are extensive Canadian gas reserves available for export to

the lower 48 states at prices lower than those necessary to support

Alaskan LNG.

PANGC and Marathon assert the five-year extension of their

authority to export Cook Inlet LNG from Kenai to Japan would extend the

current benefits now enjoyed by the Kenai Peninsula Borough, the State

of Alaska, and the United States in general, and is therefore

consistent with the public interest. According to the applicants,

cessation of exports of LNG to Japan would end these benefits, forcing

the closure of the Kenai liquefaction plant with the resultant

estimated loss of over 800 jobs generating over $40 million 5 in

personal income per year. The applicants also state the cessation of

exports would reduce local, state, and federal revenue from taxes and

royalties, revenues which totaled nearly $44 million in 1995. Finally,

PANGC and Marathon note the potential detrimental effects on the U.S./

Japan balance of payments.

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\5\ In 1995 dollars.

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DOE/FE Evaluation

This export application will be reviewed pursuant to section 3 of

the Natural Gas Act, as amended by section 201 of the Energy Policy Act

of 1992 (Pub. L. 102-486) and the authority contained in DOE Delegation

Order Nos. 0204-111 and 0204-127. In reviewing LNG exports, DOE

considers domestic

[[Page 9760]]

need for the gas and any other issue determined to be appropriate,

including whether the arrangement is consistent with DOE's policy of

promoting competition in the marketplace by allowing commercial parties

to freely negotiate their own trade arrangements. Parties that may

oppose this application should comment in their responses on these

issues.

PANGC and Marathon assert that the gas will not be needed

domestically during the extension period and the export is otherwise

consistent with the public interest. Parties that oppose extending the

PANGC/Marathon export should comment on the specific statements of the

applicants, including conclusions in the two studies submitted as part

of the application. Opponents will bear the burden of demonstrating the

proposed export extension is not consistent with the public interest.

The National Environmental Policy Act (NEPA) (42 U.S.C. 4231 et

seq.) requires DOE to give appropriate consideration to the

environmental effects of its proposed action. No final decision will be

issued in this proceeding until DOE has met its NEPA responsibilities.

Public Comment Procedures

In response to this notice, any person may file a protest, motion

to intervene or notice of intervention, as applicable, and written

comments. Anyone who wants to become a party to this proceeding and to

have their written comments considered as the basis for the decision on

the application must, however, file a motion to intervene or notice of

intervention, as applicable. The filing of a protest with respect to

this application will not serve to make the protestant a party to the

proceeding, although protests and comments received from persons who

are not parties will be considered in determining the appropriate

action to be taken on the application. All protests, motions to

intervene, notices of intervention, and written comments must meet the

requirements specified by the regulations in 10 CFR part 590. Protests,

motions to intervene, notices of intervention, requests for additional

procedures, and written comments should be filed with the Office of

Natural Gas & Petroleum Import & Export Activities at the address

listed above.

It is intended that a decisional record on the application will be

developed through responses to this notice by parties, including the

parties' written comments and replies thereto. Additional procedures

will be used as necessary to achieve a complete understanding of the

facts and issues. A party seeking intervention may request that

additional procedures be provided, such as additional written comments,

an oral presentation, a conference, or trial-type hearing. Any request

to file additional written comments should explain why they are

necessary. Any request for an oral presentation should identify the

substantial question of fact, law, or policy at issue, show that it is

material and relevant to a decision in the proceeding, and demonstrate

why an oral presentation is needed. Any request for a conference should

demonstrate why the conference would materially advance the proceeding.

Any request for a trial-type hearing must show that there are factual

issues genuinely in dispute that are relevant and material to a

decision and that a trial-type hearing is necessary for a full and true

disclosure of the facts.

If an additional procedure is scheduled, notice will be provided to

all parties. If no party requests additional procedures, a final

opinion and order may be issued based on the official record, including

the application and responses filed by parties pursuant to this notice,

in accordance with 10 CFR 590.316.

A copy of PANGC's and Marathon's application is available for

inspection and copying in the Office of Natural Gas & Petroleum Import

& Export Activities docket room, 3F-056, at the above address. The

docket room is open between the hours of 8:00 a.m. and 4:30 p.m.,

Monday through Friday, except Federal holidays.

Issued in Washington, D.C., on February 25, 1997.

Wayne E. Peters,

Manager, Natural Gas Regulation, Office of Natural Gas & Petroleum

Import & Export Activities, Office of Fossil Energy.

[FR Doc. 97-5257 Filed 3-3-97; 8:45 am]

BILLING CODE 6450-01-P