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Getting gas pipeline built top priority Anchorage Chamber published gas pipeline facts in ’05; second volume identifies, ranks goals and priorities for project Kristen Nelson Petroleum News
Getting a gas pipeline built is the first priority, the Anchorage Chamber of Commerce said in Volume 2 of its series on an Alaska natural gas pipeline.
“If this goal is not achieved, none of the other goals can be achieved either.”
In November the chamber’s State/National Affairs Committee released the 57-page volume I of its study, Natural Gas and Alaska’s Future: The Facts.
On Feb. 14 it followed with the 22-page Volume 2: Alaskan Goals and Priorities for the Natural Gas Pipeline.
The committee said it had planned for the second volume “to address economic and policy issues relating to Alaskan natural gas and the ways it could or should be developed,” but decided it first needed to identify goals and objectives Alaskans should expect from a gas pipeline, and set priorities among those goals and objectives.
A third volume will address issues around the various proposals for a gas pipeline. Maximizing the value for Alaskans The second priority the chamber set is maximizing the value of North Slope natural gas for Alaskans.
“Alaska, like the producers of the gas on the North Slope, can afford to be indifferent whether the gas goes to the Lower 48 or to Alaska if the netback value of the gas on the slope is the same either way,” the study said. The transportation cost is deducted in arriving at the netback price, so whether the gas is transported 500 miles or 2,000 miles does not affect the netback.
But if the netback from sales in Alaska is less than the netback from the Lower 48, the difference would be a subsidy from the state to the purchaser. The chamber said any subsidies to in-state users should be done through an appropriation by the Legislature so that those subsidies could be examined each year. Getting a gas pipeline built sooner rather than later The third priority is getting the line built sooner rather than later, although the report said there is a potential tradeoff between how quickly a line can be built and how large it is. If Alaska had to choose between a smaller pipeline and a larger line three or four years later, the chamber said it believes waiting three or four years for a larger line would be worth the wait because of additional in-state development opportunities and state revenues to be gained from a larger line.
But only if the difference is between a 2.5 billion cubic foot a day line and a 4.5 bcf a day line; a similar delay for a 6 bcf a day line instead of a 4.5 bcf a day line would not be justified, the report said, because current North Slope reserves would not support a 6 bcf a day production rate.
If, however, an expandable line could be built, then a smaller line that could be built sooner would be a benefit. Meeting non-industrial needs for natural gas The fourth priority is meeting Alaskans’ non-industrial needs for natural gas.
The chamber said that while measures such as exploring for gas reserves in the Cook Inlet area or a pilot project for coalbed methane development might help meet current needs, “North Slope natural gas seems likely to be a long-term source for residential, commercial and power-generation needs in the Cook Inlet area,” so it is important that the gas pipeline can “accommodate these needs in a reasonable manner.” Meeting rural needs for natural gas The fifth priority is supplying natural gas to Alaskans in places where it is not available today.
The chamber said that except for the Fairbanks area (and Valdez if a line is built to that destination), it would not be economically viable to make gas available by local grids and transmission pipelines between communities because of the distances involved.
“But it might well make economic sense to provide them with liquid propane and/or butane extracted from the natural gas and transported to them by barge,” the report said. A second alternative would be generating electricity, because electric transmission lines are far cheaper to build than gas pipelines and distribution systems.
It is important to analyze and quantify those needs now, the report said, so the necessary capacity in the gas pipeline can be reserved during the open season. Attracting new industry to Alaska The sixth priority is attracting new gas-based manufacturing industry to Alaska.
The report called this an important goal, particularly in the long run, “provided it can be done right.”
The trick, however, is that while industry is likely to come if there is an assured supply of natural gas, “it may be impractical, before the new industry is here,” to reserve pipeline capacity in an open season, since such reservations are a take-or-pay commitment to use the capacity in the line. Preserving existing industry in Alaska The seventh priority is preserving the existing natural gas-based industry in Alaska, but the report concludes this cannot be a priority for the gas pipeline because there is nothing the pipeline “can realistically do about it in time to make a difference.”
The chamber said the two natural gas-based manufacturing industries in Alaska, Agrium’s fertilizer plant and the Marathon-ConocoPhillips liquefied natural gas plant, both at Nikiski, are “facing insufficient supplies of natural gas to support their operation in the near term.” Agrium only has natural gas supply contracts to run its plant at half capacity through October 2005 and the export license for the LNG plant expires in mid-2009.
Agrium has said it is looking at coal gasification to keep its plant open, using coal both as feedstock and fuel for a new electric power plant. If this plan works out, the plant would still shut down in 2006 but would reopen as early as 2011, once the new coal gasification facilities are complete.
The chamber said it is too late to supply Agrium from the North Slope because nothing could be completed by October 2006. A bullet line could conceivably be built by 2009, in time to supply the LNG plant, yet if a main gas pipeline is going to be built on the same route as far as Fairbanks, it would not make sense to build the bullet line just to save the LNG plant, “unless the LNG plant could afford to pay for it,” the chamber said. Alaska hire, Alaska contracting permeate The chamber said it believes Alaska hire and Alaska contracting “permeate” the other goals, from getting a pipeline built to meeting Alaskans’ energy needs, so those goals are not included as separate items.
The report includes a lengthy discussion of the legal issues related to Alaska hire and Alaska contracting, and notes that the state is “not the only force that can advance these goals.” While the state must do what it can, “there are important constitutional limits on what it can do.” Private industry and organized labor can both do a lot to promote Alaska hire and Alaska contracting.
It is important, the report said, to understand what success in Alaska hire and Alaska contracting would look like. It wouldn’t mean every job would be filled by an Alaskan — or even a majority of jobs. The numbers of workers needed “will simply overwhelm the work force here in Alaska.” Success will mean qualified Alaskans who want a job on the pipeline can get a job on the pipeline.
Much the same would be true with Alaska contracting, the chamber said.
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