Alaska officials told the Federal Energy Regulatory Commission in Anchorage Dec. 3 that access to an Alaska natural gas pipeline is a critical issue. Federal officials responsible for oil and gas leasing both onshore and offshore in Alaska concurred: access to a gas pipeline must not be limited to the three major North Slope producers looking to own the gas line — BP, ConocoPhillips and ExxonMobil — but must also be assured for companies in the exploration stage, and for companies which may acquire exploration acreage in the future.
All four of the FERC commissioners were in Anchorage for a technical conference on the commission’s proposed open season regulations for an Alaska gas pipeline; regulations mandated by Congress when it enacted the Alaska Natural Gas Pipeline Act Oct. 13.
Alaska Gov. Frank Murkowski told the commission the state is negotiating fiscal terms for a pipeline under the Alaska Stranded Gas Development Act. But, he noted, the state still hasn’t received a response from the three North Slope producers on the state’s proposal for equity ownership, expected in November and now put off until mid-December. The state is also negotiating with pipeline company TransCanada.
Murkowski is concerned FERC’s proposed open season regulations don’t address access for in-state needs, and “they should,” he said. Access to the pipeline by explorers is also crucial, because it would “foster competition,” he said, and the state wants to encourage more exploration and development. He also said it is important to establish the rules of the game for explorers in initial open season and in expansions. U.S. Sen. Lisa Murkowski, R-Alaska, told the commission the duration of the open season is critical because a number of Alaska firms or other bodies will desire to become shippers. That commitment, she said, would be enormous, yet little information is available and the Alaskans will need a long open season or information before the open season begins.
Legislature also concerned about access
The Alaska Legislature’s Budget and Audit Committee held hearings on the gas pipeline. Chair Rep. Ralph Samuels, R-Anchorage, and vice-chair Sen. Gene Therriault, R-North Pole, brought the committee’s views to the commission.
Samuels said the as-yet undiscovered and undeveloped potential for natural gas on the North Slope could be as much as 250 trillion cubic feet, and said the Legislature wants to make sure “certain entities” can’t limit access to the pipeline, that “no entity has the ability to turn the spigot off.”
Presubscription or the anchor shipper concept, where companies can sign up for capacity before an open season, could be a problem, he said, because there will be only one pipeline, and presubscription could tie up the pipeline and new gas would have nowhere to go.
He also encouraged the commission to adopt a “rolled-in” pricing model. The producers need certainty for investment, he said, but so do explorers: for access and pricing.
Therriault encouraged the commission “to think outside the box” on its open-season regulations for the Alaska gas pipeline and to “address expansion issues now” because of the long lead times needed for exploration. Explorers, he said, must have some assurance a pipeline will be expanded when it becomes economic to do so. And, he said, explorers also need to know how expansion will be priced.
How capacity will be awarded needs to be in the regulations, Therriault said, and not left up to the pipeline sponsors. He also said the commission needs to set a pricing methodology for expansions, telling the commission he believes “incremental pricing would have a chilling effect on exploration investment in Alaska.”
State could be investor, part owner
Bill Corbus, commissioner of the Alaska Department of Revenue, told the commission the state is negotiating equity ownership in the pipeline and if the state becomes an investor and part owner in the gas pipeline, we “need to know the regulatory rules of the road.”
He said the administration favors a separate FERC inquiry into expandability and the issue of rolled in vs. incremental pricing.
Corbus said size and design of the pipeline are critically important to both shippers and pipeline owners, and said the state encourages early involvement of the FERC in an open season to ensure that information gets out. Regulations should ensure “full accommodation of all qualified bids,” he said, and if the pipeline is not large enough, a “fair capacity allocation methodology must be implemented.”
Congress required a pipeline certificate holder to study in-state needs and tie-in points, and Corbus said this requirement should be met prior to completion of the open season so that an open season notice can speak to how local service needs will be addressed.
Bob Loeffler of Morrison & Forester, the state’s FERC attorney, said in response to a question from FERC Chairman Patrick Wood that the state believes the study issue should be addressed in regulations because the statute leaves the timing uncertain, and the state thinks the study would be helpful before the open season to identify tie-ins, which could affect design and rate issue.
Asked by Wood if the state would use more than its one-eighth royalty for in-state use, Corbus said that is one of the things the state wants studied: we don’t have specific numbers, he said.
Commissioner Joseph Kelliher noted the commission sees concerns about overbuilding in the Lower 48, and Loeffler said with no competing pipelines the state doesn’t think overbuilding is a rate issue. We “don’t see concern about over building anywhere near as much as under building,” he said.
State most likely will be shipper on line
Tom Irwin, commissioner of the Alaska Department of Natural Resources said the state “very likely will be a shipper” on a gas pipeline, which needs to be planned for a life of at least 50 years and expandability because gas from Prudhoe Bay and Point Thomson are only “the tip of the iceberg” of Alaska’s gas resource, which could be in excess of 225 trillion cubic feet.
“Explorers will not explore today if the pipeline cannot be expanded early,” Irwin said. Decline of gas production from Prudhoe Bay and Point Thomson might not occur for some 15 years, he said, and told the commission that it should address both expansion and rolled-in vs. incremental pricing, but address them later, in a separate proceeding.
As for what needs to be established before an open season, Irwin said the state believes the method should be well understood for oversubscription to an initial line, and said if more gas is nominated than the capacity of the line, then all bids of 20 years or more should be treated equally, and prorated if necessary, to prevent shippers with gas available now from tying up the line.
The best solution, he said, is to build the pipeline big enough to carry all the gas. And, he noted, royalty gas issues and some in-state use issues may be resolved in the ongoing negotiations between the state and project sponsors.
Federal agencies concur on access
Jeff Walker, regional supervisor field operations for the U.S. Department of the Interior’s Minerals Management Service, told the commission MMS believes it is important that FERC regulations allow for new gas access.
MMS manages oil and gas leasing and development on the federal outer continental shelf and Walker said “a natural gas transportation project can increase the economic value” of the agency’s leases. This will only happen, Walker told the commission, if the regulations it adopts allow new gas access to transportation.
Gas resources in northern Alaska are stranded, Walker said, and access to a pipeline would attract new exploration companies. But, he said, new entrants would require “reasonable assurance of access and available capacity” prior to making the investments required for exploration, which requires long-term planning and staffing.
Colleen McCarthy, Bureau of Land Management deputy state director for energy, said that in the National Petroleum Reserve-Alaska, which BLM manages, the mean estimate for conventional natural gas is 73 tcf, but access to a pipeline is needed for companies exploring.
“Currently all gas resources on the North Slope are stranded,” she said.
If an Alaska gas pipeline project “does not provide access to capacity for companies” exploring in the NPR-A, “federal gas will continue to be stranded,” she said.
Without access to a gas pipeline, “there will be little incentive for companies to invest” in exploration on the North Slope.
She noted that companies have told the commission about the risk of investing in the Alaska gas pipeline. “Well, the federal government is providing substantive incentives... And the route of this pipeline crosses a significant amount of federal land … I think the federal government requires some assurance that the construction and operation of this pipeline will benefit national interests as well as the companies.”
