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White House delivers 1-2-3 verbal punch Top Bush administration officials urge Alaska Legislature to enact laws to speed construction of North Slope to Lower 48 gas line Rose Ragsdale For Petroleum News
Apparently losing patience with foot-dragging in Juneau, the White House is urging the Alaska Legislature to get on with the business of developing an Alaska gas pipeline in three separate messages from top Bush administration officials in recent weeks.
The missives came during the two weeks leading up to a second special session of the Legislature scheduled to begin July 12. State lawmakers were to again consider the controversial gas line contract the Murkowski administration inked this spring with the three North Slope gas producers, BP, ConocoPhillips and ExxonMobil. The Legislature failed to ratify the contract in the regular legislative session that adjourned in May or in an initial special session in June.
Delivering sequential verbal punches, Joseph T. Kelliher, chairman of the Federal Energy Regulatory Commission, U.S. Energy Secretary Samuel Bodman, and Vice President Dick Cheney made it known that Alaska could soon be on the ropes in its fight to deliver much-needed natural gas to the Lower 48.
Kelliher outlined dangers of waiting too long to set in motion licensing and construction of the proposed 4.5-billion-cubic-feet-a-day gas line from the North Slope to the Lower 48.
Writing to Gov. Frank H. Murkowski, Kelliher reiterated his belief that Alaska natural gas would be an important addition to future supplies needed by Lower 48 markets. He also summarized the findings of a report FERC submitted to Congress July 10 on the status of the Alaska gas pipeline. It is the second in a series of reports FERC’s staff must prepare for Congress every six months under section 1810 of the Energy Policy Act of 2005.
Because the state Legislature did not approve the gas line contract developed under the Alaska Stranded Gas Development Act this spring, “the opportunity for beginning meaningful development of an application in 2006 has been missed,” Kelliher said.
But “if a project sponsor is ready to begin developing its application and conducting necessary field surveys in the spring of 2007, it is possible that an application could be filed at the Commission before the end of 2008,” he added.
‘Window’ may be closing “The report states, however, that whether the project sponsor begins developing an application and conducting field surveys in the spring of 2007 depends largely on the Alaska state Legislature acting this summer. If not, the Alaska gas pipeline will be further delayed,” Kelliher wrote.
Why the hurry?
Kelliher said a window of opportunity for Alaska gas may be rapidly closing.
While Alaska North Slope gas once would have competed only with other North American gas production, the U.S. natural gas market is turning increasingly to imported liquefied natural gas to meet incremental growth, he explained. FERC has approved LNG import facilities in the past year with the capacity to deliver nearly 45 bcf per day of gas to the U.S. market.
Kelliher also noted that while the 35 trillion cubic feet of proved North Slope gas reserves represents about 13 percent of 263 tcf in proved gas reserves in North America, it is less than 1 percent of 6,044 tcf in proved reserves worldwide.
The report further predicts that given the large capital investment in LNG facilities, LNG exporters will prefer to establish long-term relationships and that if there is no substantial progress on building an Alaska pipeline, gas buyers in the Lower 48 will be more likely to enter into long-term LNG contracts.
Construction of the gas line was once projected to cost $18 billion to $20 billion, but the estimate already has climbed to about $25 billion and will likely continue to rise with further delays, FERC said.
Thus, Alaska’s pipeline project may be at risk of being marginalized in the search for new natural gas supplies for U.S. consumption, Kelliher said.
Feds doing their part The report indicated that work on the gas pipeline at the federal level is moving apace with significant activity, including nomination of a federal coordinator, Drue Pearce, in June; completion of an interagency memorandum of understanding in May among 15 federal agencies pledging cooperation on pipeline matters; completion of an in-state demand/needs study by the U.S. Department of Energy in June; and the commencement of alternative means of pipeline construction study by DOE in April.
The FERC chairman also observed that the McKenzie Gas Pipeline Project in Canada and unconventional sources of gas in the Lower 48 no longer pose significant competition to the Alaska gas line.
Bodman urged the Legislature to take action this summer in a two-page letter dated July 6. The secretary urged the legislators to consider the best interests of the nation as well as Alaska in their deliberations.
“Wellhead gas prices in the lower 48 states more than doubled from 2002 to 2005; that price increase has greatly increased consumer natural gas prices and has adversely affected gas intensive industries such as fertilizer production and petrochemicals, resulting in plant closures and job losses,” Bodman said.
Cheney, who wrote to the Legislature June 27, reminded the lawmakers that President Bush said America needs the energy Alaska natural gas can provide, and urged them to enact legislation this summer to facilitate construction of the Alaska gas pipeline.
“Your early action is necessary to move the process forward,” Cheney added.
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