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FERC weighs in on AGIA Says in fifth Alaska gas pipeline progress report to Congress that moving to certificate without shippers ‘less than desirable’ By Kristen Nelson Petroleum News
The Federal Energy Regulatory Commission has weighed in on a crucial aspect of AGIA — and found it “less than desirable.”
FERC said Feb. 19 in its fifth semi-annual report to Congress on progress on an Alaska gas transportation project that because the Alaska Natural Gas Pipeline Act of 2004 established in statute the public need for an Alaska gas pipeline project, any project sponsor could proceed with a pre-filing request for a FERC certificate at any time, proceed with an open season and file a certificate application for an Alaska natural gas pipeline project “without actual commitments for the transportation of natural gas from the North Slope.”
“However, this would be a less than desirable situation, given the considerable expenditures of financial and human resources required to complete the permitting process,” the agency said. “Clearly, a proposed project which is backed by firm shipper commitments to transport natural gas supplies will have a greater chance of ultimate success.”
One of the 20 “must haves” of Gov. Sarah Palin’s Alaska Gasline Inducement Act, or AGIA, is a requirement that applicants commit to proceeding through FERC certification, even if an open season is unsuccessful.
The rationale for the requirement, much discussed last year when AGIA was being debated in the Alaska Legislature, was that the North Slope producers could stop the progress of an AGIA licensed project by failing to commit gas in an open season, bringing the process to a halt.
If the applicant was forced to obtain a FERC certificate with or without gas, then the producers would be faced with a project which held a FERC certificate, and would theoretically be under much greater public and stockholder pressure to commit gas to a project as a way of commercializing their North Slope gas assets.
TransCanada, which applied under AGIA and made the commitment to go through FERC certification even if an open season was not successful, argued against the provision last year, saying time and money would be better spent working to obtain customers — following an initial failed open season — than going forward for FERC certification without customers.
The producers have said that before committing to a gas pipeline project they need fiscal certainty from the state, federal enabling legislation (passed in 2004) and regulatory certainty in Canada.
Technical conference in January In preparing for an Alaska gas project FERC held a technical conference in January on its third-party contracting requirements for preparing an environmental impact statement for an Alaska project.
FERC’s Office of Energy Projects uses third-party contractors, selected by and working under the supervision of FERC but paid for by applicants, to meet the agency’s responsibilities under the National Environmental Policy Act.
The Jan. 29 technical conference was attended by environmental and engineering analysis firms, prospective project sponsors, other project stakeholders and the Office of the Federal Coordinator.
FERC expects an Alaska natural gas pipeline EIS may be different than other pipeline EISs because of the unique nature of the Alaska project and because of unusual public and government participation and interest. Tone milder The tone of the fifth report was somewhat more hopeful than earlier reports.
The first, in February 2006, said: “Further delay, in and of itself, could impede the economic and commercial feasibility of the project,” and noted cost estimate increases over a 2001 $20 billion estimate due to a near doubling of the cost of steel. “In addition,” FERC said, “the prospective sponsors are well aware that prior experiences with market fluctuations over time led to the earlier suspension” of the previous project in the early 1980s, “and they are, no doubt, sensitive to the narrow margins of economic feasibility presented by this unique, massive undertaking.”
The second report, in July 2006, cited the growth of liquefied natural gas imports.
“Prompt action by the project sponsors, Governor Murkowski and the Alaska Legislature is necessary to enable Alaska to provide a reliable continental source of natural gas for the Lower 48 that will not only assist in the growth of the U.S. economy, but also contribute to the economic well being of the State of Alaska,” FERC said.
The report noted increases in cost estimates, and said: “Any further delays may serve to make the Alaska gas pipeline uneconomic in comparison to LNG imports.” With the money being invested in LNG facilities worldwide, the report said, “Alaska is at risk of being marginalized in the search for new natural gas supplies for the U.S. consumption.”
In January 2007 the FERC said in its third report: “The federal government is ready to act. However, no pipeline application has been developed, and the prospects of an application are more remote than a year ago. Over the past year, the schedule for an Alaska gas pipeline has slipped considerably.”
FERC cited “failure to resolve state issues necessary before a project sponsor will commit to go forward” as the main obstacle to progress, and said the new governor’s “fresh competitive approach … must be successful if Alaska gas is to be part of the nation’s energy supply solution anytime in the coming years.”
In August of 2007 FERC said the federal government is ready to act. “We look forward to seeing if the progress made by the STATE of Alaska in enacting AGIA and commencing its RFA is followed by an AGIA licensee selection process that elicits a viable proposal to make Alaska’s natural gas available to U.S. consumers.”
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