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State lays out plan for bullet line ‘Action plan’ and a pair of bills would coordinate efforts toward construction of $4 billion gas pipeline into Southcentral; greatest state involvement in ‘bullet line’ efforts to this point Eric Lidji Petroleum News
The Palin administration is taking a more active role in the construction of a $4 billion pipeline to deliver northern natural gas to communities along the Alaska road system.
Gov. Sarah Palin introduced two bills on Feb. 27 designed to “jump start” construction of an in-state pipeline, and on March 3 outlined an “action plan” to get gas flowing by 2015.
One bill expands the role of the Alaska Natural Gas Development Authority. The other tries to alleviate the risk for companies that want to build or ship gas through a pipeline.
Under the action plan, the state will try to align potential gas owners with potential gas buyers, apply for permits and rights of way, estimate the tariff, develop a business plan and eventually choose a private sector company to build and operate the pipeline.
The state hopes to have enough commitments and information to be able to make that decision by June 2011, according to Project Manager Harry Noah, executive director of the Trust Land Office and former commissioner of the Department of Natural Resources.
Once the state hands the project over to a builder, Noah estimated costs between $600 million and $900 million for detailed engineering work, furthering permitting and buying long lead-time materials. Construction would begin in 2012 and finish in late 2014.
“This schedule is very ambitious,” Noah said, but added that he thought it would be easier to slow down a fast timeline than be forced to speed up a slower timeline later.
Bullet line is still large Although dwarfed by a large-diameter natural gas pipeline being planned to run from the North Slope into Canada, this “bullet line” is still a massive project by industry standards.
The state envisions a 24-inch pipeline moving 500 million cubic feet of natural gas per day some 800 miles from the North Slope to Southcentral Alaska at a cost of $4 billion.
Combined, the five longest gas pipelines completed in the Lower 48 in 2007 run 789 miles, but cost only $1.7 billion and move 3.4 billion cubic feet of natural gas daily, according to the most recent information from the Energy Information Administration.
The proposed bullet line is half as large and just as long as the trans-Alaska oil pipeline.
This bullet line idea is not new. Enstar Natural Gas is pursuing a nearly identical pipeline running from the Gubik Complex being explored by Anadarko Petroleum in the Brooks Range foothills to the Southcentral distribution grid with a connection to Fairbanks.
“The difference here,” Palin said, “is that you have a state commitment and you have a project manager to see this project come to fruition. I think that’s been one of the missing pieces of the puzzle.”
The puzzle is how to replace dwindling gas supplies in the Cook Inlet and volatile fuel oil supplies in the Interior. Current ideas include the bullet line, a spur line plan under way by ANGDA, efforts to increase exploration in the Cook Inlet and even importing supplies.
Additional puzzles The bullet line faces additional puzzles.
One is how to coordinate enough industrial demand to keep transportation costs low on the pipeline, while keeping total volumes below 500 million cubic feet per day, the self-imposed limit for state involvement. Getting that demand requires not only coordinating the Railbelt utilities, but also restarting the mothballed Agrium fertilizer plant in Nikiski.
Another puzzle is finding an agreeable price for the commodity. Currently, producers and regulators have been unable to agree on how to price remaining gas supplies in Cook Inlet, and the stalemate could easily follow a bullet line back up to North Slope supplies.
Another is finding a supply of natural gas. Prudhoe Bay is proven, but far away. Gubik is closer, but Anadarko doesn’t expect to have reserve estimates until 2016. The Nenana basin is closer still, but the least proven source. A group hopes to drill there this summer.
Noah acknowledged those challenges, but said, “If you’re going to try and put together a project and you wait for everything to fall in place, you’re always going to be behind the curve. This is something that we can control right now and move forward with. And we’ll know more in two years than we know now. But if we don’t start, we won’t.”
Evolving involvement on plan The new plan furthers the evolution of the state’s involvement with in-state natural gas.
Originally, the Palin administration expected the takeoff points from a large-diameter pipeline heading to the Lower 48 would meet the demand for natural gas within Alaska.
By May 2008, when the state awarded TransCanada a license to build that pipeline, dwindling supplies of Cook Inlet gas prompted Enstar to begin looking at a bullet line.
The administration did not become involved with the bullet line at the time, saying only that it would not challenge either the economics or the feasibility of the larger pipeline.
As oil prices peaked last July, Palin became more involved, announcing a public-private partnership between Enstar and ANDGA to build a bullet line from Cook Inlet to Fairbanks by 2013, or to the North Slope by 2014. That partnership failed to materialize.
In her annual State of the State address to lawmakers in January, Palin said she would introduce legislation to facilitate “a smaller, in-state gas line” that could deliver 460 million cubic feet per day of natural gas to markets in Alaska within the next five years.
Bills designed for certainty The legislation consists of two bills.
The first, paired as SB 135 and HB 163, would expand the responsibilities of ANGDA, guaranteeing the public corporation could work on a wider variety of natural gas projects.
Under the proposed legislation, ANGDA could work on a natural gas pipeline connecting production basins anywhere in the state, such as the Nenana basin or the Copper River basin, with markets anywhere in the state, including the Interior region or the Bush.
ANGDA CEO Harold Heinze did not believe the current statutes restricted his group, but said the additional clarity would help when ANGDA goes for financing.
Concerning the action plan, which might overlap with ANGDA work, Heinze said, “The governor has set a direction that she wants to take. We’re still a little bit in the dark trying to figure out exactly at what level of detail we can help Harry Noah and that effort.”
The second bill, paired as SB 136 and HB 164, would amend the Pipeline Act and the Right of Way Leasing Act in the hope of offering more certainty to builders and shippers.
One way it tries to achieve that is by allowing shippers to make firm transportation commitments without fear of being prorated if new customers want space on the pipeline.
The provision is designed to get producers to commit long-term supplies to a pipeline.
Another is to allow the Regulatory Commission of Alaska to offer a pipeline builder a conditional certificate before the company gets financing or transportation commitments.
The administration believes this would bolster attempts to get investors and customers.
The bill also lays out expansion requirements on any in-state gas pipeline similar to those set up for an interstate pipeline under the terms of the Alaska Gasline Inducement Act.
The proposed bill would require a pipeline operator to solicit for new gas supplies every two years and expand the pipeline when necessary and commercially feasible.
Spokesman Curtis Thayer said Enstar was reviewing the bills, but planned to participate in the new action plan, saying, “Everything we have we will share with this state.”
The bills have been referred to the respective energy committees in each body.
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