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Vol. 14, No. 16 Week of April 19, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Don’t pick a winner

Porter says state should let economics, circumstances choose in-state gas line

Eric Lidji

Petroleum News

The state should focus on filling a short-term gap in Cook Inlet gas supplies, rather than become too involved in efforts to build a bullet line, according to a legislative consultant.

The two ongoing efforts to bring new gas supplies into Southcentral are complementary, according to consultant Steve Porter, who made the remarks in an April 10 letter to Sen. Kevin Meyer, R-Anchorage, chair of the Legislative Budget and Audit Committee.

“They are independent and neither should wait for the other,” Porter wrote.

Enstar Natural Gas, a private utility, is looking into building a “bullet” line from northern Alaska into Anchorage along the Parks Highway, or a spur along the same route. The Alaska Natural Gas Development Authority, a public corporation, is studying a spur line running from Delta Junction to Anchorage along the Richardson and Glenn highways.

Harry Noah, appointed by Gov. Sarah Palin to manage in-state gas pipeline issues, has called the various efforts “uncoordinated,” warning that without coordination the state could waste money by accidentally duplicating work being done by private industry.

Separate projects for now

Porter said the state should allow ANGDA and Enstar to work on their separate projects at the same time, for now, because each pipeline addresses a different contingency.

While a bullet line would be independent of a major natural gas pipeline running from the North Slope into Canada, a spur line is by definition dependent on such a mainline.

Because of this, proponents of various spur line options have noted the advantage of being ready to have a spur line project well-defined before an open season on a mainline.

During an open season, potential customers make long-term commitments to ship gas through a pipeline. Spur line proponents want to hold a concurrent “in-state open season.”

However, if a mainline gets delayed, a bullet line might be appropriate, Porter wrote.

“What is important at this time is to fully support the major gas line and encourage it to proceed, while not foreclosing other options,” Porter wrote. “At least until the open seasons, all options should be encouraged to proceed.”

The Palin administration last summer attempted unsuccessfully to merge the two projects by forming a public private partnership between Enstar and ANGDA. More recently, the state has taken a more active role through Noah’s attempt to coordinate various efforts.

Noah to compare costs

Noah’s first step will be comparing the routes on issues of cost, environmental impacts and population served. Porter called the work an “appropriate exercise,” but added it “can and should be done without interfering with the progress of either project proposal.”

He said economic realities would ultimately eliminate one or both of the projects.

“As Enstar and ANGDA proceed ahead with their independent engineering analysis in preparation for their separate open seasons, they will come up with differing tariffs. Only the most economic project will proceed. The state does not need to choose a winner at this point, nor does it need to interfere with either project moving forward,” Porter wrote.

Porter estimated it would take “at least 10 years before either a bullet line or a major gas line will be able to deliver natural gas to Cook Inlet,” during which time existing Cook Inlet gas production is expected to fall below growing demand in the Southcentral region.

“The best use of the state’s time and resources is to work with the Cook Inlet explorers, producers, and utilities to identify a dependable source of supply of natural gas for Cook Inlet while other public and private entities are developing projects to bring Alaska’s North Slope gas to market,” Porter wrote.

No ‘predetermined outcome’

The Palin administration believes a mainline offers the best prospect for delivering natural gas to markets within Alaska, but initiated the bullet line effort as a backstop.

Considering the projected shortfalls of natural gas from Cook Inlet, and the uncertain timeline for when a large gas pipeline may come online, “if there is a need to fill the gap in the meantime, we need to know what our options are,” Joe Balash, special assistant to Palin for oil and gas issues, told the Senate Energy Committee on April 2.

Balash said the pipeline could come online as soon as 2018, but a range of regulatory, technical and logistical delays could easily push that startup date back to 2020 or 2021.

Balash said Noah’s work doesn’t have a “predetermined outcome,” but considering the lead time for a bullet line, “if we don’t start working on it now, it may be too late to consider that as an option in 2011 or 2012 when we know what our choices really are.”

The Palin administration expects ANGDA to play a role in the newest in-state gas pipeline effort, even proposing legislation to expand the authority of the agency. The appointment of Noah, though, has prompted debates about what role ANGDA would or should have in the effort to bring northern natural gas to Fairbanks and Anchorage.

Following a debate during a meeting of the ANGDA board of directors on April 8 — in which ANGDA agreed to cooperate with the state, but not to delay any of its ongoing efforts — Noah and Heinze met to discuss the ways the two parties could collaborate.

During a special board meeting on April 13, Heinze said he and Noah agreed to separately request funding from the Legislature, promising not to advocate for or against each other. ANGDA is requesting $5.25 million, while Noah is asking for $9.35 million.

Heinze said Noah wants ANGDA and Enstar to study alternate routes.

‘Becoming dysfunctional?’

In the months before appointing Noah, the Palin administration put holds on several ANGDA contracts, concerned about the nature and direction of the agency’s work.

An Attorney General ruling convinced ANGDA it could move forward on issuing the contracts, but the dissention within the executive branch spilled over into the Legislature.

“I have become increasingly alarmed with ANGDA’s recklessness and inability to play well with others,” Rep. Jay Ramras, R-Fairbanks, said April 9 at a meeting of the House Special Committee on Energy.

Ramras proposed an amendment that would have required ANGDA to get the governor’s approval before conducting any work on any project. Ramras ultimately withdrew the amendment at request of the committee chair, Rep. Bryce Edgmon, D-Dillingham.

The amendment arose during discussion of HB 163, the bill to expand the authority of ANGDA to cover projects across the state. Ramras called the bill “dangerous” and voted against it. Rep. Pete Peterson, D-Anchorage, also voted against moving the bill. The committee ultimately moved the bill on a 4-2 vote.

“The concern that I have is that ANGDA is increasingly becoming a dysfunctional group that is not following the instructions of the State of Alaska,” Ramras said.

Several times during the hearing, Ramras asked Heinze if ANGDA was “deferential” to Noah. Heinze didn’t answer that directly, instead saying ANGDA was “supportive” of Noah, but that Noah’s plans didn’t overrule the statutory authority governing ANGDA.

The language to expand ANGDA’s authority ended up in HB 44, which pre-authorizes ANGDA to issue up to $250 million in bonds. The bill passed the House on April 15.

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