Vol. 14, No. 17 Week of April 26, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Bringing the gas home

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Legislature provides $7M for in-state work, partially funding Palin’s plans

Eric Lidji

Petroleum News

The 26th Legislature sought to bring natural gas home.

With the Alaska Gasline Inducement Act and a revised production tax structure, the 25th Legislature focused on delivering North Slope oil and gas to markets outside the state.

This year, focus shifted to bringing new gas supplies to communities from Fairbanks to Anchorage after a summer of record oil prices hit pocketbooks in the Interior, and continuing declines in Cook Inlet production and deliverability worried Southcentral.

Before the end of the session on April 19, lawmakers gave some $7 million to the office of Gov. Sarah Palin to coordinate various efforts to build a gas pipeline to serve Alaska markets, work headed up by former Natural Resources Commissioner Harry Noah.

The administration wasted no time, opening bidding on a contract on April 20.

The Palin administration requested $9 million for the work plan, but some lawmakers contested the request, saying they didn’t learn about it until final budget deliberations.

Spending guidance a concern

Those lawmakers worried, in particular, that the appropriation didn’t include enough guidance as to what it would and would not be used for and ultimately, the $7 million appropriation came with language attached designed to focus the use of the money.

Noah’s work will most likely build on efforts by the Alaska Natural Gas Development Authority and Enstar Natural Gas, two groups studying separate pipeline projects.

The administration plans to collect engineering, permits and rights of way, and sell the package of information to a private sector company to actually construct the pipeline.

Legislative leaders noted that state lawmakers, by constitutional requirement, would have the authority to determine the terms of sale and the buyer for that package of goods.

ANGDA worried about funding

Throughout much of the latter part of the session, ANGDA worried the administration work might siphon funding or interest from its own work. Harold Heinze, chief executive officer of ANGDA, and Noah reached some terms of agreement in the final days of the session.

Ultimately the Legislature funded the $312,100 operating budget of ANGDA, but not the capital budget requested to fund specific projects relating to its spur line project. ANGDA plans to meet soon to discuss how to continue its work in light of its financial situation.

Enstar, a private company, did not request funding from the Legislature this year.

However, one bill before lawmakers was designed to alleviate potential concerns of a pipeline builder about protecting shippers on the pipeline. That bill, HB 164, received considerable time in committees, but did not reach the floor during the first session.

The bill would provide some guarantees that initial shippers on the pipeline would not have their shipments prorated if new customers came along in subsequent years.

Contracts ready (already)

With the session complete, focus is now shifting to the summer work season.

The Department of Natural Resources is budgeting between $5 million and $6 million for a contract to gather enough information to decide whether to sanction a “bullet” line from gas fields in northern Alaska to the Southcentral distribution grid, through Fairbanks.

The work includes deciding the best route for the pipeline, gathering early permits and estimating the shipping costs on the pipeline, as well as finding a source of natural gas to fill the pipeline and finding industrial and large commercial customers to buy that gas.

The potential residential demand for gas along the road system of Alaska is not believed to be enough to support an 800-mile pipeline projected to cost $4 billion or more.

The contract runs through June 30, 2011, with milestones to be completed along the way.

The first step is comparing four scenarios: two routes for a bullet line from the North Slope and two routes for a spur off a proposed mainline from Prudhoe Bay into Alberta.

A spur line could take advantage of the scale of a big pipeline to possibly lower costs to consumers. But the uncertain timing of a big pipeline, combined with declining gas production in Cook Inlet, has turned some sights toward building an independent bullet line.

Enstar is studying a bullet line from the Brooks Range Foothills to Anchorage down the Parks Highway. ANGDA is studying a spur line from Delta Junction to Anchorage down the Richardson and Glenn Highways that could be extended to the North Slope if needed.

The contractor will analyze a bullet line and spur line option for each of the two routes.

The state is scheduling some two months for this work. Following a public review of the results of the comparison study, the ANGDA board of directors will meet this July to choose which route to follow, according to an April 17 letter from Joe Balash, Palin’s special assistant for oil and gas issues, to members of the House Finance Committee.

ANGDA prepping workload

Although ANGDA did not get the financial support it wanted, the agency is still moving forward on contracts and other plans related to its efforts on the in-state gas pipeline.

The board of directors planned a special meeting on April 23 to prioritize contracts in the wake of its limited funding. The meeting occurred after Petroleum News went to print, but was also scheduled to discuss the relationship between ANGDA and Noah’s efforts.

ANGDA has some money on hand, funding unspent from previous budget cycles.

Some of the work on the table includes a study of the resources available in Cook Inlet and petroleum engineering review of an exploration well drilled near Glennallen.

At an April 20 meeting, ANGDA announced plans to host a workshop in Fairbanks at the end of May where various in-state gas players could discuss the issue before the public.

An early invitee list included ANGDA and Enstar; Anadarko Petroleum, which is exploring for gas in northern Alaska; the Alaska Gasline Port Authority; representatives from various communities on the road system; the Governor; and key legislative leaders.

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