What's Next for the Alaska South Central LNG Project?

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On Friday, a consortium of companies including ExxonMobil , ConocoPhillips , BP , and TransCanada announced that they have started summer field work for a natural gas pipeline and liquefied natural gas, or LNG, project in Alaska's North Slope.

"The summer field work is a key activity to support the project's engineering, design and cost estimation work while also gathering data required for permitting the project," said Steve Butt, the project's senior manager. "It is another significant step forward for the SC LNG project, further demonstrating the commitment and capabilities of the sponsor companies."

By the end of this year, the companies involved will have spent an estimated $80 million-$100 million since joint work on the project began in March 2012. The planned summer field work will build on the companies' previous efforts, which included the joint Alaska Gas Producer Pipeline Team effort in 2001-2002, the Denali Project, and the Alaska Pipeline Project.

North American gas export potential
As oil production from the North Slope has plunged over the past few decades, energy companies have focused their attention toward the region's vast deposits of natural gas. According to Alaska Gov. Sean Parnell, the North Slope may contain some 35 trillion cubic feet of gas reserves and more than 200 trillion cubic feet of undiscovered, technically recoverable gas.

If true, that would make it one of the largest natural gas deposits in the world. And if that gas can be exploited, it could bring in as much as $20 billion in annual revenue once markets in Asia open up. With the global LNG trade expected to rise substantially over the next several years, other companies are also building LNG facilities in North America.

For instance, Apache's subsidiary, Apache Canada, and Chevron Canada, a subsidiary of Chevron , are currently completing front-end engineering and design, as well as other preliminary site work, at the Kitimat LNG plant in British Columbia. Two liquefaction trains are in the works, each with expected capacity of about 750 million cubic feet of gas per day.

Apache and Chevron each command a 50% interest in Kitimat LNG, located at Bish Cove on the northern British Columbia coast roughly 400 miles north of Vancouver, after former partners Encana and EOG Resources, who previously had a 30% non-operating interest in the project, sold their interests and exited the venture earlier this year.

Challenges and opportunities for the Alaska LNG project
While Alaska's hydrocarbon potential is vast, the Alaska South Central LNG project still faces hurdles that include harsh weather, uncertainty in securing permits, and taxation policy uncertainty. According to Larry Persily, the U.S. Interior Department's federal gas pipeline coordinator, it also faces global competition from similar export projects being developed in Australia, Russia, the U.S. Gulf Coast, and British Columbia.

Still, all global LNG projects have their share of challenges. In Australia, for instance, cost overruns have become a major cause for concern, while political uncertainties threaten projects in Russia and British Columbia. Even projects based in U.S. Gulf Coast are faced with uncertainties regarding fees and transportation, Persily said.

Given this backdrop, the Alaska South Central LNG project may actually be more competitive than might appear at first glace. In addition to having an established gas reserve and known legal infrastructure, the Alaskan coast offers even closer proximity to Asia than similar projects in western Canada, which could potentially allow for lower shipping costs.

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The article What's Next for the Alaska South Central LNG Project? originally appeared on Fool.com.

Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Chevron. The Motley Fool owns shares of Apache. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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