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September 2008

Vol. 13, No. 37 Week of September 14, 2008

Nuiqsut should get natural gas this winter, switching from diesel

Villagers in the North Slope community of Nuiqsut could heat their homes with natural gas this winter, more than a decade after securing a supply from a nearby oil field.

The North Slope Borough recently completed testing the Nuiqsut Natural Gas Pipeline and expects to bring the 14-mile line into operation soon. Area power generation facilities could start burning natural gas by Sept. 17, and contractors hope to begin converting boilers for the community of about 375 as soon as Oct. 13, although villagers can pay to switch over sooner.

The move to natural gas will dramatically lower heating costs in Nuiqsut, where temperatures fall below freezing nearly 300 days each year.

Nuiqsut currently pays the highest heating costs on the North Slope, where most communities receive some form of government subsidy.

Under the rates recently proposed to state regulators, customers would pay around $1.79 per thousand cubic feet of gas from the pipeline. Generating the same amount from heating oil would cost around $20.43, according to June prices collected by the state.

Once the system becomes fully operational, Nuiqsut will become the second North Slope community to generate heat from natural gas. Barrow, the largest city in the borough, uses a local supply of natural gas to heat its homes, businesses and public buildings.

Deal originally with ARCO

The Nuiqsut Natural Gas Pipeline has been long in the works.

The project dates back to early development work at the Alpine oil field in the Colville River unit. The facilities for Alpine sit on part of the 140,000 acres of land owned by Kuukpik Corp., the Native village corporation for Nuiqsut.

In the mid to late 1990s, Kuukpik signed a deal with ARCO Alaska, then the operator of Alpine, allowing the company to use Native-owned lands in return for some of the gas produced during oil development. Alpine went into production in November 2000.

The move turned out to be one of great foresight for Nuiqsut. At the time, oil prices were only $20 a barrel. Today, prices have been well above $100 a barrel for months.

However, while ARCO, now ConocoPhillips, agreed to provide the gas, the village was required to build the facilities to condition and distribute the gas to homes and buildings.

The North Slope Borough agreed to finance the $10 million pipeline project, raising money for the transportation system through bonds and for the distribution system through a grant from the National Petroleum Reserve-Alaska impact fund.

The borough planned to start construction toward the end of the 1990s. But the project moved slowly as the borough worked to get permits, grants and right-of-way leases.

Now certificated as pipeline

The borough received a certificate to operate as a public utility in 2001.

By late 2004, officials with the Nuiqsut Natural Gas Pipeline said it had finished building the conditioning plant and some of the distribution facilities, but still faced “delays in its gas supply contract negotiations.” Those delays, in part, forced the company to reapply for state regulatory permission to operate the pipeline.

The borough faced further delays as it worked with the Alaska Oil and Gas Conservation Commission to obtain approval for meters allowing the gas being taken from Alpine to be measured for state royalty purposes. In early 2007, the AOGCC approved a 1 million-cubic-foot-per-day gas offtake rate at Alpine, solely for the purpose of supplying Nuiqsut.

But the borough faced another obstacle in May of 2007 when the Regulatory Commission of Alaska determined the pipeline could not be run as a public utility because a clause in the right-of-way application filed with the state years earlier required the project to be a common carrier pipeline.

That re-designation meant the pipeline couldn’t be exempted from economic regulation.

The borough finally received a new certificate in August 2007 to operate the pipeline as a common carrier, and submitted its first proposed tariff in August 2008. The RCA is taking comments on that tariff through Sept. 22.

—Eric Lidji






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