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FERC praises Palin’s progress on gas line Fourth report from federal regulatory agency on Alaska natural gas pipeline progress cites state, federal advancements Kristen Nelson Petroleum News
Both the State of Alaska and the federal government have made progress toward an Alaska natural gas pipeline project, the Federal Energy Regulatory Commission told Congress Aug. 15 in its fourth semi-annual report on the status of Alaska gas pipeline proposals.
“I commend the progress the State of Alaska has made under the leadership of Governor Sarah Palin in recent months,” FERC Chairman Joseph Kelliher said in a statement accompanying the report. “I am hopeful the new state process will encourage the development of a natural gas pipeline project in Alaska,” he said.
Since the commission’s last report, at the end of January, Alaska has enacted and begun to implement the Alaska Gasline Inducement Act and the D.C. Circuit of the U.S. Court of Appeals has upheld FERC’s open season regulations for the Alaska gas pipeline project.
The tone of the latest report is more hopeful — and less alarming — than earlier reports have been.
FERC said in that first report that for an Alaska natural gas project to be successful it “will have to overcome a variety of significant impediments presented by the tremendous size, scope and cost of any such delivery system, the long lead time needed to develop such a project, unique environmental and competitive conditions and the international scope of such a project.” On the Mackenzie project FERC said it is “neither a complement to nor competitor of an Alaska natural gas pipeline,” but “industry reports indicate that there will not be enough pipeline grade steel available to construct both projects at the same time. Similarly, there could be a shortage of the skilled labor force required to build two technically challenging Arctic projects of such magnitude at the same time.”
Issued Feb. 1, 2006, the first report said many of the impediments to the project were being addressed by legislative initiative and other government action at the state and federal level, but concluded further progress on any of three proposals — the Alaska Natural Gas Transportation System sponsored by TransCanada Corp., the Trans-Alaska Gas System liquefied natural gas project sponsored by the Alaska Gasline Port Authority and the proposal by BP, ConocoPhillips and ExxonMobil, the so-called producer group — would only occur after project sponsors concluded a successful Stranded Gas Development Act negotiation with the State of Alaska.
Second report: window closing While FERC’s first report said progress was being made, the second, issued July 10, 2006, was less positive.
Federal agencies were moving ahead but the Alaska Legislature was grappling with the contract negotiated by then Gov. Frank Murkowski with the North Slope project sponsors, BP, ConocoPhillips and ExxonMobil, and with a revision of the state’s production tax.
The contract, centered on providing fiscal certainty, never came to a vote in the Legislature and Murkowski lost a bid for re-election in August; a production tax revision, the petroleum profits tax or PPT, was passed by the Alaska Legislature, but not in the form the Murkowski administration negotiated with the North Slope sponsor group.
The second report emphasized what FERC called a “closing window” for Alaska gas delivery, based on the number of proposed new LNG import facilities it had approved recently in the Lower 48 and an expectation that gas buyers would sign long-term contracts for LNG “if there is no substantial progress on building an Alaska pipeline.”
LNG deliverability into the Lower 48 was 5.8 billion cubic feet a day at the time of the second report and FERC had approved 11 new LNG terminals since 2003 with a total capacity of 20.6 bcf per day. Expansions of 2.2 bcf a day were also approved — a combined potential of 28.6 bcf of deliverability.
FERC noted that early estimates of an $18 billion to $20 billion cost for the Alaska gas project had increased to $25 billion. “Any further delays may serve to make the Alaska gas pipeline uneconomic in comparison to LNG imports,” the agency concluded at the end of its June 2006 report. “As demonstrated by the magnitude of monies being invested in LNG facilities (an estimated $250 billion worldwide through 2030, FERC said, citing the International Energy Agency) and the falling costs per unit of LNG infrastructure, Alaska is at risk of being marginalized in the search for new natural gas suppliers for U.S. consumption.”
The Palin turnaround FERC’s third report was issued Jan. 31, on the cusp of major changes in Alaska.
Alaska had elected a new governor, Sarah Palin, in November. Palin’s first act upon being inaugurated in early December was to meet with potential gas project sponsors. Early in the New Year she submitted a new gas pipeline bill, the Alaska Gasline Inducement Act, spelling out what incentives the state was willing to offer in exchange for a commitment by a project proponent to build a gas pipeline from the North Slope. Palin described the AGIA process as competitive and transparent, contrasting it to the Stranded Gas Development Act, under which the state had held confidential negotiations.
On the federal side, the Senate confirmed Drue Pearce as federal coordinator and she began meeting with stakeholders in both Alaska and Canada and FERC’s open season regulations for an Alaska gas pipeline project were appealed by the North Slope project proponents.
In the conclusion of the January report FERC put the failure to advance an Alaska gas pipeline project squarely on the state’s shoulders: “The main obstacle to progress on an Alaskan gas pipeline is the failure to resolve state issues necessary before a project sponsor will commit to go forward. The fresh competitive approach announced by the new governor must be successful if Alaska gas is to be part of the nation’s energy supply solution anytime in the coming years.”
Fourth report upbeat In contrast, the FERC’s Aug. 15 report is decidedly upbeat. Since the previous report, FERC said, the State of Alaska has enacted and began implementing AGIA; the U.S. Court of Appeals upheld FERC’s open season regulations; Federal Coordinator Drue Pearce has been “active in discussions with project stakeholders”; the U.S. Department of Labor issued a grant to Alaska for pipeline worker training; and FERC commissioners and staff have continued to prepare for filing of an Alaska project application, including a staff visit to the project area in Alaska.
The State of Alaska released its request for AGIA applications July 2, took comments and suggested revisions through July 23 and issued an amended RFA Aug. 6. AGIA applications were originally due Oct. 1; the state extended the deadline to Nov. 30 “in response to requests for more time from several prospective applicants.” The state’s goal is to have a licensee selected and doing field work in the summer of 2008.
“It is not necessary that the sponsors of an Alaskan project participate in the AGIA process as a prerequisite to filing an application” with FERC, the commission said in its report. “Moreover, there is no certainty that the Commission would impose on a certificate holder the rate and other requirements included in AGIA — the Commission will have to make an independent determination on these matters. However, FERC staff has testified before the Alaska Legislature that nothing in AGIA is on its face inconsistent with the Natural Gas Act, the Alaska Natural Gas Pipeline Act or the Commission’s regulations.”
FERC: AGIA incentives may lead to timely project AGIA requires an open season to be held within 36 months of the issuance of an AGIA licensee. It also requires that the license holder commit to using FERC’s pre-filing process and file a FERC application within a time certain. To that extent, FERC said, “AGIA may provide incentives that lead to the timely development of an Alaska project.”
Certificate pre-filing is required only for LNG facilities under FERC’s regulations, the report said, but its “processing of any Alaskan natural gas pipeline would be greatly enhanced with the project sponsor’s use of the Commission’s pre-filing process.”
All three projects discussed in the first report are still in play. FERC said in its report that the North Slope project sponsor group has three options: applying for an AGIA license and FERC certificate; becoming shippers on a pipeline built by an independent pipeline that secures an AGIA license; or forgoing the AGIA license and applying to FERC for a project of its own design. FERC noted that under the first two options, “AGIA provides the producers with additional royalty, taxes and cost protection incentives to commit their gas to the pipeline, provided that their gas is committed during the first open season for an AGIA licensed project.”
FERC concluded by saying Alaska offers a reliable source of natural gas for the Lower 48 states.
“The federal government is ready to act on any projects to transport Alaskan gas to the Lower 48 states. We look forward to seeing if the progress made by the State of Alaska in enacting AGIA and commencing its RFA is followed by an AGIA licensee selection process that elicits a viable proposal to make Alaska’s natural gas available to U.S. consumers.”
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