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Providing coverage of Alaska and northern Canada's oil and gas industry
March 2009

Vol. 14, No. 11 Week of March 15, 2009

What role for ANGDA in bullet line?

State sees public corporation handling early technical pieces; ANGDA weighs lapsed contracts, looks at North Slope propane facility

Eric Lidji

Petroleum News

The Palin administration envisions the Alaska Natural Gas Development Authority handling early technical pieces of a renewed push to build an in-state natural gas pipeline.

“I see ANGDA as being the storehouse of the engineers and the technical people needed to put this work together for this project,” Harry Noah, recently brought on as project manager for the pipeline, told the ANGDA board at a March 9 meeting in Anchorage.

The work would include permitting and rights of way, helping to define the tariff on the pipeline and working on “interim measures” between now and the start of the pipeline.

Much of the work over the next four months involves comparing the possible routes for pipeline. ANGDA favors a path down the Richardson Highway to Glennallen, while Enstar Natural Gas, a private utility, favors a route down the Parks Highway to Wasilla.

The “bullet line” proposed by Gov. Sarah Palin on March 3 would run from an undecided natural gas source, through Fairbanks and into Southcentral at a cost of around $4 billion.

Following the announcement, ANGDA was unclear about its role in the project.

The state plans to handle much of the early work on the pipeline, including the key challenge of aligning potential gas producers with potential gas users, but hand over the actual construction and operation, and presumably some financing, to a private company.

Several agencies involved

ANGDA will be one of several state agencies involved in this early work, Noah said.

Noah envisions the Department of Natural Resources would most likely handle the negotiations with natural gas producers to get supply contracts, while the Department of Revenue could very likely be called on to handle certain tax issues related to the venture.

Noah expects ANGDA would be “heavily involved” in choosing the private company, and would “represent the public” as the state transfers its work to that company.

Enstar, which is weighing plans to build a nearly identical $4 billion bullet line into Southcentral, is the most likely candidate, but Noah said, “Once you spend public money, you can’t hand it to somebody. So it will essentially have to be a bidding process.”

Noah doesn’t yet know whether or how the state might be involved in financing the bullet line. The state plans to decide whether to sanction the project by June 2011. “We will know a lot more in a year. We will know a whole lot more in two years,” Noah said.

Noah expects ANGDA’s work would cost around $10 million. The original budget Palin sent to lawmakers late last year included $5 million for ANGDA, but a recent supplemental budget upped that to $8 million, even as it cut funding for other efforts.

ANGDA Board Member Kate Lamal asked Noah how the new role would differ from the work ANGDA is already doing toward building a spur line and other natural gas projects.

Noah said, “The governor has turned her focus” to address in-state gas, and the change is that ANGDA now has “a whole bunch of new best friends here all of the sudden.”

Over the next month, ANGDA plans to collect the previous work on the bullet line, and craft a proposal showing the steps and costs associated with accomplishing Palin’s plan.

ANGDA contracts held up

Because it maintains relationships with many contractors that work on pipelines, in many ways ANGDA is the ideal state agency for handling the kind of work Noah described.

But half of ANGDA’s contractor workforce has lapsed due to administrative holds over the past three months, ANGDA Chief Executive Officer Harold Heinze told the board.

“We face a very significant chicken and egg situation. The very help (Harry Noah) wants is not under contract right now,” Heinze said.

Heinze said he received a letter from Pat Galvin, commissioner of the Department of Revenue, saying the hold on the contracts is because of a Department of Law review.

“I believe the hold has been because the administration has been shaping its whole approach to the in-state issue,” Heinze said, saying he did not “begrudge” the administration for holding contracts while it worked up an overarching strategy for dealing with in-state natural gas issues, but adding, “I believe that we are at the moment to move forward and I think it’s a detriment to everybody if we don’t,” Heinze said.

Marcia Davis, deputy Revenue commissioner and department liaison to ANGDA, said she believed the hold was to ensure ANGDA and Noah proceeded in a “coordinated fashion.”

Heinze asked his board for permission to issue the held contracts on his own, saying the statutes that created ANGDA give the agency authority to act independently of the state.

Getting closer to propane

One of the “interim measures” Noah described could be propane distribution.

ANGDA is nearing a deal to buy propane from the North Slope, Heinze said.

“We have been in discussion with a Prudhoe Bay producer. We believe we have reached commercial terms with them,” Heinze said, adding that the producer wanted to define “business and technical” details about the project before finalizing those terms.

Heinze declined to name the producer before the agreement is finalized.

The facility would commercialize North Slope gas before construction of a pipeline.

Gas at Prudhoe Bay is currently separated from oil and sent through gas facilities and compressors where it is primed to be injected back into fields to increase oil production.

ANGDA wants to tap that stream as it leaves the gas facility to remove some, but not all, of the propane molecules that make up about 2 percent of the natural gas stream.

“We would run it through a processing plant, separate out the propane molecules and return the rest of the gas, the 98.5 percent gas, back to the Prudhoe Bay unit,” Heinze said.

After some processing, the propane could then be trucked to communities on the road system, barged to communities on the river system, or loaded into ISO containers and sold almost anywhere, providing an alternative fuel option for thousands of Alaskans.

The facility would sell propane wholesale. At “moderate” oil prices, Heinze said the facility could supply consumers for around $1 a gallon, or around $10 per million British thermal units, roughly equivalent to the going rate for natural gas in the Cook Inlet.

Private firm would build

ANGDA wants to get the project conceptualized, permitted and financed, and then look for a private firm for construction and operation. Heinze said several Alaska companies have expressed interest in the facility, including companies that already sell propane and companies that want to distribute propane and might be willing to follow it to the source.

Heinze said he has identified two “major” industrial tenants interested in the project.

“Either of these two entities is big enough that it would allow us to proceed,” he said.

ANGDA is looking to put the facility near the mouth of the Putuligayak River, about five miles northwest of Deadhorse, near the North Slope Borough Landfill. The ultimate site needs to be close enough to existing facilities to tap the gas stream, but discreet enough not to get in the way of an eventual gas treatment plant associated with a major pipeline.

By tapping the gas stream, the facility would become integrated into Prudhoe Bay.

“We are in the midst of the guts and feathers of the Prudhoe Bay field, still North America’s largest field,” Heinze said. “If this screws up in any way, you shut the field down. So this has to be done extremely carefully.”

The actual propane plant is relatively conventional. Heinze suggested ANGDA or a contractor might even be able to pick one up second hand from the Lower 48.

“You find them all over the United States,” Heinze said.

The Palin administration recently proposed legislation to expand the authority of ANGDA, a move they said in part would be to help move the propane facility along.

ANGDA and the Anchorage Economic Development Corp. are sponsoring a conference in April to highlight the opportunities for value-added industries in Alaska.






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