Why hasn’t the Alaska Natural Gas Development Authority pursued an LNG project out of Valdez?
Apparently it was a question Gov. Sarah Palin asked ANGDA CEO Harold Heinze, board Vice Chairman Scott Heyworth and board member Dan Sullivan when they met with the governor, the lieutenant governor and leaders of the Palin gas team in early December.
As Commissioner of Revenue Pat Galvin put it when the ANGDA board discussed it at a Dec. 18 board meeting, the governor’s reaction seemed to be that it was great the authority was pursuing a spur line to Southcentral, but wasn’t ANGDA “intended to be bigger than that?” Galvin said the governor considers herself answerable to the public and she wants to go back and recognize what was in the initiative voters approved.
“You identified a more focused agenda,” he said, and the governor would like an explanation of how the board identified its role as the spur line. Perhaps it was a reaction to the previous administration, Galvin said, and suggested the board might want to “take the opportunity with this new administration to go back and look at that question again before we proceed with a particular view of what ANGDA’s role in all this is going to be.”
Heinze said he felt the Palin administration “was asking ANGDA to go back and take a harder look at a project that makes sense within the State of Alaska,” something he said he would call “an Alaska-market-based project.”
ANGDA has looked at what it called a “bullet line” — a backup position in the event that a main line taking gas through Canada is not built. Heinze said such a project would need to include both Cook Inlet and Valdez, and said he thought the administration was “looking to us to bring forward some information at some point that sort of defines what the opportunity was there, what the project might look like.”
Heinze said he certainly didn’t get the impression this was the first or second choice of the group, but was something “the administration wanted on the list and wanted to understand enough about.”
If a project into Southcentral is considered, “Valdez is an essential component of it,” Heinze said. The market that exists in Southcentral is “so small that the economics of all this become very difficult. If you include Valdez, even at very modest volumes, it has a significant lowering of cost of service to this area.”
Murkowski administration ‘very cool’The main emphasis of that initiative was a Valdez-based LNG project, although as Heyworth — the initiative sponsor — told the board, while the words in the initiative describe a gas pipeline from Prudhoe Bay to tidewater at Prince William Sound, he did include a spur line through Glennallen in the initiative.
He said it was wonderful to be received by the governor and her staff, and said he thought it would be “very helpful to the governor” to look at ANGDA as the “vehicle for in-state gas.”
Heyworth noted that Marty Rutherford, acting commissioner of the Department of Natural Resources, was looking at a “smaller in-state project that cracks North Slope gas open.”
As for the ANGDA focus under the Murkowski administration, “We picked up what we could do,” he said, and lived to fight another day.
ANGDA board Chairman Andy Warwick concurred, characterizing the Murkowski administration as “very cool” toward an all-Alaska gas pipeline project (i.e. gas to Valdez for LNG). He also said the Alaska Gasline Port Authority, which is pushing a Valdez-based LNG project, “was pursuing it very aggressively and acquired access to permits,” so it was “counterproductive to compete with the port authority.”
However, Warwick said, “Gov. Palin would have significant influence over who took that project on — probably she would be the determining factor.” The effort to put together an all-Alaska gas project would be “monumental,” he added, for whichever entity the administration backed.
ANGDA never lost track of LNGHeinze said ANGDA has “never lost track of the LNG idea.” The authority knows a little more about alternatives than it did, he said, and “if you look back through the reports you’ll see that a lot of what we did is usable under a very wide range of circumstances.”
And, he said, ANGDA has “maintained a good relationship with those type of people that we believe that if we got gas to tidewater, they would come and build the LNG plant, build the ships, haul the gas off — and we wouldn’t even have to make those investments.”
Heyworth noted the memorandum of understanding ANGDA has with Mitsubishi and said both he and Heinze have worked to keep that relationship alive, to keep that option open.
Heinze said he took the opportunity to pitch the spur line and LNG from Valdez to another potential player when BG, British Gas, was in town to talk to the governor about the North Slope gas line project. There are five mega oil companies, he said; “there is only one mega gas company — British Gas.”
BG became involved in North Slope exploration prospects early in 2006 as a partner with Anadarko Petroleum and Petro-Canada in the Brooks Range Foothills and later in the year in partnership with Anadarko in acreage including Jacob’s Ladder south of Badami.
Heinze said he pitched BG over lunch.
“They are one of the two or three or four people in the world that would have a large interest in building an LNG plant and the tankers and developing the market — if we got the gas to tidewater. They’re also the kind of people that might be willing to go upstream of that point,” he said.
Heinze said BG is probably the largest player in LNG shipments, and called it an interesting connection that could happen because the governor threw open the door to people to come make their pitch.
Funding limitedAs far as what ANGDA does, or can do, Heinze said that the efforts ANGDA takes on “are limited very much by the resources that are available to us.”
The authority has spent a little over $2 million, he said and still has a half a million dollars left of its capital appropriations.
ANGDA’s capital budget request for this year was $4.6 million, about “the right sum of money for the next step,” for projects covering a couple of years, Heinze told the board.
The $4.6 million “would allow us to proceed with the spur line as a project and as a business entity,” he said.
The authority requested $900,000 in operating funds; it lived on about $300,000 this year, Heinze said.
The Murkowski administration included only $320,000 in operating funds in the budget it passed to the Palin administration, including what Heinze described as a small amount for board stipends. Among things the $900,000 would have allowed were a 50 percent increase in staffing and more money for public outreach, he said.
Heinze said ANGDA asked for $4.6 million in capital last year, was told that was too much and reduced its request to $2.5 million, but never got any capital funds.
“Basically we have stretched something over a million dollars out for a fairly good period of time and we still have a half million left. So I count ourselves as being somewhat prudent and frugal. But to advance the cause at some point requires money.”
Heinze said the “easier, cheaper parts” of a spur line project, such as getting the conditional right of way from Glennallen to Palmer, are done. What comes next, “for instance getting financing arranged — those kinds of things — cost real money.”
The spur line is a billion-dollar project, he said, and before the board could make a legitimate decision on a project that size, it probably will have to have spent “several tens of millions of dollars to feel comfortable with that decision.”