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Fauske: AGDC cheaper than doing nothing Report on bullet line due to Alaska Legislature July 1; more money will be needed to validate plus or minus 30% number in report Kristen Nelson Petroleum News
The Alaska Gasline Development Corp. will give the Alaska Legislature a report on July 1 pegging the cost of an in-state gas pipeline so legislators can decide whether to proceed with the project.
Moving ahead would involve marketing the plans and permitting, which AGDC has done to a private concern that would construct and operate the pipeline.
This in-state gas line or bullet line would be a 24-inch diameter, 500-million-cubic-foot-per-day line from the North Slope to Southcentral Alaska, with a lateral line running to Fairbanks and a gas processing facility — most likely on the North Slope — to remove impurities from the gas, Dan Fauske, CEO and executive director of the Alaska Housing Finance Corp. and president of AGDC, said in a March 29 presentation to the House Special Committee on Energy.
AGDC has engineering under way along with work by contractors on a number of economic-market studies that include gas to liquids, liquefied natural gas and natural gas liquids. An economic study on Cook Inlet natural gas also is being done by the Alaska Department of Natural Resources, Fauske said.
Current demand in Southcentral Alaska is 200 million cubic feet per day.
Initial costs Preliminary cost figures from July 2010 were $8.4 billion at 500 million cubic feet per day (with the gas spiked with natural gas liquids) or $6.9 billion at 250 million cubic feet.
Fauske said AGDC is studying treating gas at Prudhoe Bay or at a straddle plant near Fairbanks; NGLs would be removed at the straddle plant to produce utility-grade gas and then be reinjected into the line, with final removal at a plant in Cook Inlet.
Joe Dubler, chief financial officer of AHFC and vice president and CFO of AGDC, said estimates of what facilities would look like are preliminary as studies of NGL, GTL, LNG and Cook Inlet economics are not complete.
Numbers presented in the July report will be much more refined than the $8.4 billion and $6.9 billion numbers from last July, Dubler said.
Financing options under review Dubler said the cost of debt depends on whether the project can use Alaska Railroad Corp. tax-free bonds or whether it ends up in the taxable debt market.
The cost of debt also depends on throughput (how much upstream gas is available and how many downstream customers there are;) whether the project includes marketing of natural gas liquids; whether there is state equity in the project; and whether the state provides royalty gas for the initial line fill.
Dubler said AGDC is expecting to be competitive with the cost of importing LNG.
On the issue of a state subsidy for the project, Fauske said he’s “a one-time subsidy advocate, meaning you drive down capital costs to arrive at a tariff that’s affordable.”
“The cost of doing nothing far exceeds the cost of doing this project,” Fauske told legislators. The state is blessed with the resources to deal with the looming gas shortage in Cook Inlet and with high energy costs elsewhere in the state. “My attitude on this as a long-term Alaskan is this problem must be solved,” not just for Anchorage but for the economy of the state as a whole, Fauske said.
He said the way to look at this is in the frame of 50 to 100 years.
Fauske said he doesn’t have a vested interest in anything, but thinks what makes the most sense is “what accomplishes the biggest bang for the buck.”
But he said, “I just don’t believe we can walk away from the issue. When (Anchorage) Mayor Sullivan starts pulling brownout practices,” suddenly people are paying attention.
Not just one project He told legislators he believes there is room for both a Susitna dam project and an in-state gas line, but said Susitna is the long-term answer, and only for electric power. There are some 150,000 structures in the Anchorage area, and no one is advocating converting all of those to electric heat, he said.
On the other hand, if a mainline gas pipeline happens, then the work AGDC has done can be handed over, and the Southcentral portion of the work becomes a spur line.
He said he believes a large line is “going to happen in time, but not on our timeframe, and so we’ve now put ourselves in a position where we as Alaskans must fix this problem.”
And the goals are different, with the large line planning to sell massive amounts of gas on a competitive market, while the in-state line “is more fixated on gas supplies to Alaskan residents. And if you can polish it up a little bit with a couple of nice anchor tenants to drive that tariff down, you’ve done a good thing; but it’s not totally commercial driven,” Fauske said.
Commercial activities Fauske said AGDC has been out talking about the project with big owner-operators like Kinder Morgan and Enbridge and has found a lot of interest in the project.
But if the Legislature decides to move ahead after receiving the July 1 project report, it will need to fund a validation of the number presented in July since that July number will be in the plus or minus 30 percent range.
No builder-operator would put in a bid on that kind of a number, Fauske said, telling legislators it would take an additional 2-5 percent of the project cost to validate the number.
That would be stage 2, and isn’t that lengthy a process, he said. The Legislature can then come back and make a final decision.
ROW application submitted
A right-of-way application and development plan for the project, called the Alaska Stand Alone Gas Pipeline or ASAP, are available online at http://dnr.alaska.gov/commis/pco/.
The project description says the line will be buried except for the first six miles, elevated at bridge stream crossings, compressor stations, possible fault crossings, pigging facilities and off-take valve locations.
The goal is for both the main and lateral lines to operate at ambient temperatures — below freezing in predominantly permafrost areas to protect stability of the surrounding ground and above freezing in predominantly thawed settings to avoid the creation of frost bulbs which could lead to frost heaves or adverse impacts on drainages crossed by the line.
Construction by spreads The plan says that construction has been divided into four spreads on the main pipeline and one for the lateral line into Fairbanks. A winter construction season would run from November through April and a summer construction season from June through September; construction was planned according to season to contend with varying terrain, climate and geologic conditions.
Major pipeline construction is planned for a two-year period, with approximately three-quarters of the line to be constructed over two winter seasons.
Pipe, materials and large construction equipment would come in by marine transport, with pipe coming in at the Port of Seward for shipment to Fairbanks on the Alaska Railroad. Once the pipe has been double jointed and coated, it will be moved to its final destination by rail or truck.
Materials and equipment for the gas conditioning facility would be shipped to West Dock at Prudhoe Bay.
Materials for the NGL extraction facility would be transported by ship, then by existing rail and public roads; a permanent gravel road will be constructed to the NGL extraction facility.
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