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Strike two for ANGDA spur line funding ANGDA couldn’t convince the state to spend $25 million plus in tight times, now it plans to return to the Legislature for help Eric Lidji Petroleum News
The Alaska Natural Gas Development Authority is planning to ask the Legislature for an increase in funding denied in the 2010 budget proposed by the Palin administration.
The public corporation of the state is looking to get between $25 million and $50 million to advance a spur line to deliver North Slope natural gas to Railbelt communities.
Gov. Sarah Palin’s proposed budget for the coming fiscal year, which begins July 1, includes a $5 million appropriation for ANGDA, in line with recent funding for the voter-created agency charged with delivering natural gas resources to Alaska communities.
The administration said the $5 million appropriation signifies a scaled-back commitment to the spur line during uncertain financial times. Oil revenues account for nearly 90 percent of unrestricted state revenues, and oil prices have been incredibly volatile of late.
Harold Heinze, chief executive officer of ANGDA, believes time is of the essence for the project. He pled his case to the Palin administration during budget deliberations this fall.
“It was important for us to do that because we will go to the Legislature,” Heinze said.
The Legislature is responsible for altering and approving the state budget each year. The governor is allowed to make line-item vetoes, but not to add new spending to the budget.
The Palin administration would prefer to advance the spur line under a public-private partnership announced this summer, but believes the $5 million budget “placeholder” keeps ANGDA’s needs on the radar, according to Joe Balash, special assistant to Palin.
“We are not yet convinced that we need to spend $50 million of public funds in fiscal year 2010,” Balash said.
A delicate spur line proposal The spur line is an attempt to secure a long-term supply of relatively cheap natural gas for the population center of Alaska situated around Anchorage and leading up to Fairbanks.
But the project requires a number of conditions to be as successful as possible.
First, the spur line by definition depends on a mainline, in this case one running from the North Slope into Canada. Currently, two companies are looking to build that line, but construction is still far off and could be delayed or canceled by any number of factors.
The spur line would run from Fairbanks to the existing power plant at the Beluga River gas field west of Anchorage, passing by the cities of Glennallen and Delta Junction.
Without a mainline, the spur would have to be extended to gas fields on the North Slope, which would greatly increase the cost of the gas, or be reversed to ship Cook Inlet natural gas to Fairbanks, which could further strain declining gas supplies around Anchorage.
Second, the spur line would ideally be built before the mainline in order to avoid the almost certain escalation in project costs that will come in the wake of a big project, a 1,700 mile pipeline expected to cost between $26 billion and $40 billion.
The two companies trying to build that pipeline each expect to start scouting for gas commitments in 2010 in order to bring the project online sometime around 2020.
Third, the spur line would be most efficient if it addressed all of the natural gas needs in the Railbelt as one large unit, rather than as a collection of smaller individual utilities.
This “aggregation” would require the major natural gas and electric utilities in Alaska to agree to multi-billion-dollar supply commitments for several decades. Those companies have never worked together to that degree before, and have been territorial in the past.
State wants more clarity Taken altogether, the Palin administration believes those issues create enough uncertainty on the project to make funding the full ANGDA request unwise during a tighter fiscal cycle.
“A number of the commercial elements necessary for a spur line are far from clear,” Balash said, pointing to information about demand needs, aggregation and rate design.
While Balash admitted the idea of building a spur line before a mainline has “some merit,” he said, “We still need to see a clearer picture on the commercial side of things.”
ANGDA believes the picture can only be made clearer with a $25 million to $50 million program to gather enough information to convince the utilities to combine their demand.
Heinze said those companies need as much time and information as possible to make the decision. He wants to have the engineering work done as early in 2009 as possible.
“I don’t think you stop spending,” Heinze said. “You just spend more wisely.”
Heinze compares the spur line to the electric utility Municipal Light & Power’s decision to buy a portion of the Beluga River gas field, which stabilized gas prices in Anchorage.
“That opportunity can only be captured by people who have the financial ability to do it,” Heinze said, referring to the state.
Heat lost since summer In an attempt this summer to address concerns about in-state energy needs and costs, Palin announced a partnership between ANGDA and the Southcentral utility Enstar Natural Gas to build a small-diameter pipeline from the Cook Inlet basin to Fairbanks.
The partnership has not progressed at all in the months since the announcement, even though both ANGDA and Enstar have continued to work on separate pipeline projects.
ANGDA is now looking for a company to help it decide whether to join a public-private partnership, most likely with Enstar but theoretically with any private sector company.
Heinze believes ANGDA can ensure a low tariff for the pipeline, while the private sector can build and operate the line, making sure the project comes in on time and on budget.
Enstar said it would consider the spur line route favored by ANGDA and the state, but the company spent some $6 million this year studying a pipeline from Anchorage to the Gubik field, an unmeasured natural gas prospect in the foothills of the Brooks Range.
Enstar has said it plans to decide whether to sanction the $3.3 billion pipeline by June 2009.
A return to the Legislature The recent decision not to fully fund the work program ANGDA wants to complete in the coming year is a reversal from this summer, when the state seemed to be flush with cash.
The Palin administration included a $25 million appropriation for ANGDA as part of a package of funding requests made to state lawmakers during a special session in August.
While the House approved the appropriation, Senate leaders ultimately postponed that and many other funding decisions until the next regular session, which begins Jan. 20.
“There’s nothing with these projects that would lead you to think that they should not be in the normal capital process,” Sen. Burt Stedman, a Sitka Republican and co-chair of the Senate Finance Committee responsible for the final bill, told Petroleum News in August.
In early October, Heinze said ANGDA might be forced to issue bonds for the first time if the governor and the Legislature do not approve the $25 million to $50 million request.
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