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

Vol. 14, No. 19 Week of May 10, 2009

ANGDA: Either/or versus and/until

ANGDA wants the state to allow spur line and bullet line to both continue until economics prove up one project or the other

Eric Lidji

Petroleum News

Recent work to bring North Slope gas to Alaska markets has focused on “either/or” decisions. The Alaska Natural Gas Development Authority wants those to be “and/until.”

The “either/or” questions cover both which project to build and what route it should take.

The project could either be a spur coming off a larger mainline built to serve markets outside Alaska, or an independent “bullet” line linking some northern gas field to local markets. Once the decision is made between those two options, the pipeline could be routed either down the Parks Highway or down the Richardson and Glenn highways.

During a board meeting on May 6, ANGDA approved a resolution suggesting all parties involved should consider both projects and both routes until enough information is collected about the economics of the various options for a commercial decision to appear.

Legislative consultant Steve Porter made a similar recommendation to the Legislative Budget and Audit committee in an April 10 letter, saying the state should allow work to continue on all options until the economics clearly favored one over all the others.

“As Enstar and ANGDA proceed ahead with their independent engineering analysis in preparation for their separate open seasons, they will come up with differing tariffs. Only the most economic project will proceed. The state does not need to choose a winner at this point, nor does it need to interfere with either project moving forward,” Porter wrote.

For much of last year, the question of how to bring northern gas supplies to Alaska communities focused on work by ANGDA to build a spur line down the Richardson Highway and work by Enstar Natural Gas to build a bullet line down the Parks Highway.

Choosing a route

The resolution arose because the Palin administration said ANGDA would ultimately be responsible for choosing the route for a gas pipeline to Alaska markets, a decision that made some board members, especially Vice Chair Don Benson, uncomfortable.

At the May 6 board meeting, ANGDA Chief Executive Officer Harold Heinze said each potential pipeline project and each of the two routes had benefits and drawbacks.

A spur line could take advantage of the scale of a mainline to lower the cost of gas to consumers. But by definition, a spur line depends on both the construction and the timing of a mainline. A bullet line doesn’t depend on a mainline, but also can’t reap its benefits.

Likewise, a route down the Richardson Highway would likely hit a larger percentage of the population as well as several military bases, but a route down the Parks Highway could end up being shorter in an industry where project costs are measured by the mile.

Heinze said various open seasons in 2010 would answer many of the questions.

The state became more involved in late February, hiring former Department of Natural Resources Commissioner Harry Noah to coordinate the various projects on the table.

Since the appointment, Noah and ANGDA have had several public debates as they try to come to terms on the role each side will play as the state works to coordinate the effort. In the resolution, ANGDA said it would support Noah as he works to secure commercial aspects of the pipeline, like finding adequate gas supplies as well as sufficient demand.

What about Valdez LNG?

The state recently began looking for a contractor to compare four potential options for the in-state gas, a bullet line and a spur line going down the Parks and Richardson Highways.

Those scenarios, though, leave out an LNG project out of Valdez, the “all-Alaska line.”

The Alaska Gasline Port Authority, the main proponent of such an LNG project, believes the oversight is not only ill advised, but also in contradiction with recent state policy.

Bill Walker, general counsel and project manager for the Port Authority, believes the emergence of shale gas plays across North America have jeopardized the economics of an overland natural gas pipeline running from the North Slope through Canada. The Palin administration challenges that claim, saying North Slope gas will come to market first.

Walker asked the state to include LNG in its contract, citing previous policy directives.

Following the vote last August to give TransCanada Corp. a state license under the Alaska Gasline Inducement Act to move forward on a mainline, lawmakers added intent language saying the state should also “enable and encourage” an all-Alaska line.

Gov. Sarah Palin made a similar move in late August, signing Administrative Order 242, which directed her cabinet to help out anyone pursuing a feasible LNG project.

“Everything comes back to the market conditions,” Tom Irwin, commissioner of the state Department of Natural Resources, said during the announcement of the administrative order. “If you a market for LNG only, we agree that will be built. If there’s only a market for the U.S through Canada, that will be built. If for both, both can get built.”

Funding only for in-state

Noah said the Palin administration still considers the all-Alaska line to be an option for a bigger pipeline to deliver North Slope natural gas to Outside markets. But he said current funding, a $7 million legislative appropriation, only covers in-state projects, not exports.

“The purpose of this work is to get gas to Alaskans. And that’s it,” Noah told the ANGDA board on April 30. “…The purpose of this is not to look at an export project.”

Several members of ANGDA and AGPA feel the administration isn’t judging the all-Alaska line by the same criteria as the various bullet line and spur line possibilities.

At a board meeting on April 30, Heinze said every option involves exports to some degree. A spur requires a mainline destined for out of state markets, while a bullet line needs an industrial anchor like the Nikiski LNG facility to keep tariffs manageable.

On May 6, ANGDA and AGPA agreed to share information about project engineering and cost estimates “to allow interested parties to participate” in the 2010 open season.






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