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January 2010

Vol. 15, No. 1 Week of January 03, 2010

Noah tells legislators time to choose

Says Legislature funding too many options, confusing market; Irwin says information isn’t in for standalone or AGIA line to market

Kristen Nelson

Petroleum News

Alaska legislators heard two different views in mid-December of what they should do about gas projects in the state: Harry Noah, the outgoing project manager for the state’s in-state gas project, said there were too many options in play and the state’s leaders need to make a decision.

Commissioner of Natural Resources Tom Irwin, whose department along with the Department of Revenue is managing the state’s role in the Alaska Gasline Inducement Act mainline project, said information isn’t complete for either a mainline or an in-state bullet line and urged legislators to wait until complete information is available.

Noah and Irwin addressed legislators at a Dec. 16 meeting of the House Resources Committee.

Noah, who resigned and is being replaced by Bob Swenson (see story in this issue), said the economy of Alaska may change dramatically in the next 10 years based on reduced oil production and fewer federal dollars.

He said the state needs long-term affordable energy right now, but is engaged in what he depicted in a diagram as an energy tug of war.

Competing projects

A major North Slope natural gas sale conflicts with in-state energy supply, Noah said, with numerous energy projects including the AGIA 48-inch main line to Lower 48 markets being developed by TransCanada and ExxonMobil; the Denali 48-inch line being developed by BP and ConocoPhillips; the in-state standalone gas line; the Alaska Gasline Port Authority 48-inch line to Valdez for liquefied natural gas; natural gas for Railbelt utilities — which could also use alternative energy; Alaska Energy Authority hydropower and alternative energy projects; Cook Inlet gas producers; and the Alaska Natural Gas Development Authority line, which may be a spur line off a main line.

Everybody is in favor of a main line from the North Slope, he said, as well as an in-state energy supply.

But, he said, “We are pulling this way and we’re pulling that way,” and while good people are involved on the different projects, “one side just wants to kill the other side,” even though all sides want to do what’s best for Alaska.

“All the people that are working on this, they feel that they have a plan and they can’t quite figure out why everybody else doesn’t agree with them and why their plan doesn’t work,” he said.

There’s a lot of energy, he said, “but we’re not actually moving forward.”

“And quite honestly, the Legislature’s funding most of these,” he said.

Noah said he’s as guilty as anybody: “I mean I’ve just gotten tired of all the arguments and stopped talking to people.”

He said it’s time for the state’s leaders to “sort these things out and they’re hard decisions, they really are: If they were easy they’d be made.”

Estimates by summer

Transportation cost estimates for a standalone in-state gas line from the North Slope to Cook Inlet should be completed by early summer, Noah said. Those transportation cost estimates will be updated after the 2010 field season and the initial permitting effort is expected to be complete in February 2011.

That, he said, will allow the state to put the permitting and engineering package out to bid and should allow a successful bidder to start moving gas in 2015-16.

It’s a “very aggressive schedule,” Noah said, but with an additional $6.5 million in the governor’s current budget, much of that for field work, a private party will have what it needs to do a detailed design and move ahead with the project.

It would be an even better package if buyers and sellers of natural gas were able to come to commercial agreement and provide letters of intent to buy and sell gas. He said the intent of the commercial working group the in-state gas line group set up was to encourage potential buyers and sellers of gas to work toward letters of intent.

In-state line or renewable energy

Noah also said that the state is confusing the market. Renewable energy is a good idea, he said, but Alaska is a small market with only so much demand.

There are two issues: whether the state will support renewable energy or an in-state gas line and whether the state will look to private parties to fund development or jump in with state dollars.

On the one hand, he said, the state wants people to come in and spend money on energy projects, but “on the other hand we’ve got this hammer out here,” in effect telling private parties “you guys go ahead and spend your money but if you do we may decide to come and do it ourselves.”

The state is spending money and “it’s confusing the marketplace” and, he told legislators, “you the politicians get to make the decisions: Are you going to fund these alternative projects?”

He also said the issue of whether the state is going to deal with fiscal certainty needs to be resolved, “because if you aren’t that means the (48-inch) pipeline’s going to be delayed for some period of time.”

Irwin for the administration

Commissioner of Natural Resources Tom Irwin appeared to answer questions legislators had directed to the administration.

He quoted an August letter from the governor which referred to the in-state gas option for Alaska. In the letter the governor said: “We remain committed to that work and will continue driving hard to assure Alaska’s resources power Alaskans homes.”

In a December letter responding to Rep. Jay Ramras, R-Fairbanks, the governor talked about his “… commitment to bring a long-term stable supply to energy to all Alaskans,” and said the administration continues to evaluate a standalone pipeline from the North Slope as well as a spur line to Southcentral from a major pipeline to the Lower 48.

Irwin said the governor’s support of the standalone in-state line was reflected in his budget, which proposed $6.5 million to continue work on that line.

Irwin also told legislators: “I am absolutely convinced the AGIA project is working — it’s moving forward.”

He said he hears that nothing is being done.

“Folks, we’re designing the largest pipeline project in North America … we see the progress,” and that progress will be available to see in the full filings with the Federal Energy Regulatory Commission, he said.

Irwin said he was talking about AGIA because, “It’s critical we don’t get sidetracked because that’s the economic long-term future of Alaska.”

But, he said, the administration is also working on short-term energy issues, including alternative energy, conservation, gas storage in Cook Inlet, Cook Inlet reserves and what incentives are needed for companies to drill there.

The focus issue

Resources co-Chair Craig Johnson, R-Anchorage, asked Irwin about Noah’s assertion that the state needed to focus its efforts.

Irwin said he believes decisions need to be made, but doesn’t believe all of the information is available yet.

Irwin said he’s primarily working on AGIA, but there is a group working on energy for the villages. “What’s good for most of us on the Railbelt — there could be a very different answer for some of the villages,” he said.

Neither bullet line nor AGIA information is complete today, Irwin said.

Asked by Resources co-Chair Mark Neuman, R-Wasilla, about coordination and sharing of communication among the projects, Irwin said he believes information should be shared, but said neither side — AGIA or the bullet line — has complete data.

As to making a decision now, Irwin said, “We have a time of urgency; we do not have a crisis.”

DNR support for bullet line?

Ramras asked Irwin if the standalone in-state gas line was the state’s backup plan.

Irwin characterized it as “one of the arrows in the quiver” but said the state needs to know the timing and the cost.

Ramras asked when the state should pull the trigger on the bullet line and Irwin said “we’ve already pulled the trigger; the work’s being done; … if the Legislature supports the governor’s budget, the work will continue.”

More information will be available in 2010 on AGIA, Irwin said, and on the standalone in-state gas pipeline. The state will also see responses to what happens in Cook Inlet and perhaps there will be more drilling in Interior basins.

Asked by Ramras if he would support development of an in-state pipeline, Irwin said he would need a lot more information, including the cost and timing of the bullet line; who the commercial players are — those buying and selling the gas.

“I will support as the DNR commissioner anything that makes economic sense to get Alaskans economic energy,” Irwin said.

Cook Inlet concerns

Ramras said he was concerned that the liquefied natural gas plant on the Kenai Peninsula wouldn’t survive on a standard that requires the owners of the plant — ConocoPhillips and Marathon — to replace reserves they export from the plant.

He asked if that standard would allow for the survival of the plant as an industrial anchor for a small-diameter pipeline from the North Slope.

Irwin said the replacement standard could be important to ensuring gas for use in Southcentral.

House Speaker Mike Chenault, R-Nikiski, asked Irwin if Conoco would get state support if they filed for an extension of their export license based on no-net-loss of reserves.

Irwin said the negotiations last time were long and detailed, but the state wanted to protect gas for Alaskans and jobs on the Kenai Peninsula. But no loss of reserves is also critical because the U.S. Department of Energy will be looking at the depletion rate, he said.

“None of us want the gas supply to go away,” Chenault said, but the LNG plant is basically providing gas that can be used by the utilities during the peak need in winter. While the problem now is deliverability in the cold months, in the future it could well be a supply issue and the plant could be shut down, costing the state 100 good-paying jobs, on top of those lost when Agrium closed.

But, he said, if you bring the bullet line to Cook Inlet, you could kill Cook Inlet production and the jobs associated with production, environmental work and exploration, a total of 500 jobs, Chenault said.

With the beluga whale issue and other issues that are coming up, “I have some deep concerns about any type of exploration in Cook Inlet,” offshore or onshore, he said.





Corps working on EIS for standalone line

The U.S. Army Corps of Engineers is working on a draft environmental impact statement for the State of Alaska’s proposed standalone in-state gas pipeline project. The corps is the lead federal agency; the Bureau of Land Management, National Park Service and Environmental Protection Agency are participating as cooperating agencies.

The state’s permit application is for a 24-inch diameter, high-pressure pipeline from Alaska’s North Slope to Cook Inlet to transport ANS natural gas to in-state markets. Gas off-take would be provided for the Fairbanks area and other locations along the route, the corps said.

The project includes a gas conditioning plant on the North Slope, compressor stations along the line and natural gas liquid extraction facilities to produce utility-grade natural gas.

Two routing options are being considered, both from Prudhoe Bay to Cook Inlet, one via the Parks Highway and one via the Richardson Highway. Two spur line options and two pre-build options are also included in the proposal.

Two sources of gas are included: Prudhoe Bay and Gubik.

The scoping process began Dec. 7 and will end Feb. 5.

The Draft EIS is expected to be available for public review in August.

The project manager for the corps is Serena Sweet; Sweet is also the project manager for the Alaska Natural Gas Development Authority Beluga-to-Fairbanks natural gas system draft EIS.

—Kristen Nelson


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