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Vol. 12, No. 27 Week of July 08, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

ANGDA plans attachable application

Spur line could run from either Delta Junction or Glennallen to Beluga River field; volume would depend on authority’s open season

Kristen Nelson

Petroleum News

The Alaska Natural Gas Development Authority does not plan to submit an application to build a gas pipeline from the North Slope to market under the Alaska Gasline Inducement Act.

Instead, ANGDA Executive Director Harold Heinze said at a June 20 board meeting, an ANGDA proposal would cover in-state gas needs. It would include a spur line from either Delta Junction or Glennallen to the Beluga River field, and would be “a quality application, meeting the AGIA guidelines and of sufficient quality that a major proposer would be pleased to staple it to their application.”

Heinze said that application is at the top of his priority list for the $5 million the Legislature appropriated for ANGDA, money which was included in the budget Gov. Sarah Palin signed June 29.

While a spur line would run into Southcentral, ANGDA’s proposal would cover broader in-state use — Fairbanks, the Yukon River and even tidewater communities up and down the coast, he said.

Heinze said the in-state piece of a project would be important, but “it’s not important under the total project economics; and as such probably people are not going to work it real hard,” so “… by offering this to anybody who either proposes a project or applies under AGIA, we assure that at least there’s a quality consideration of how Alaska’s needs internally are met.”

Heinze said he has met with some major pipeline companies in the Lower 48 who have the capacity to design, build and operate the spur line, and also have the financial strength needed for the project. He said these are companies that wouldn’t be interested in building the North Slope line, but would be interested in the smaller line.

A lot of materials are already assembled and the other key parts, relating to the market and financing, ANGDA has been addressing “pretty aggressively,” Heinze said.

Spur line pre-build a requirement

What would ANGDA want in exchange for having its application included as part of a larger project?

Heinze said there would be minimal strings attached.

One of those would be a requirement to pre-build the spur line because of the seriousness of the Cook Inlet gas situation. The big project also needs to start from the north and build south — again, to get gas to Cook Inlet as quickly as possible. And a third condition is that ANGDA has spent public money on some of this work, such as obtaining a conditional right of way, and wants to be able to return that money to the state.

Heinze said the ANGDA portion of the project could easily be built in two years: It’s a buried, 24-inch-diameter line on a defined right of way along the Glenn Highway and following the trans-Alaska oil pipeline south of Delta Junction. If the port authority project were built with a main line going to Valdez, ANGDA could build the 150 miles from Glennallen to Palmer and the 40 miles on to Beluga; if a line went into Canada, then ANGDA could also build the 150 miles from Delta Junction to Glennallen.

Heinze said it is crucial that the ANGDA line be built before the main pipeline is constructed — and ANGDA needs to be ready.

“So the key point is there will come a moment on the big project where they drop the green flag. … When that flag drops, if we’re ready, we can easily get this project done before the major construction push happens on that big project.”

On the issue of building the spur line and having it sit for two or three years until the big line is completed and gas is flowing, Heinze said if the spur line isn’t built in advance, that project could be competing with the main line for construction workers.

“And it may be just the saving of the premium — caused by that competition — may make it easy to sit there for two years.”

But, he said, the financing wouldn’t be available for a spur line unless people believe the main pipeline project is going to happen and “unless you can show them a fallback position that makes sense to them.” That, Heinze said, is where the Alaska Gas Market System comes into play. That is the 1.25 billion cubic-feet-a-day standalone project which is a backup proposal to move North Slope gas to Southcentral in the absence of a larger pipeline. “If I end up in Delta Junction (with the spur line) and the world comes apart, I still have something I can do. It may not be the preferred project; it may not be as efficient; but it makes economic sense.

“And if the bankers believe that, then you have backstopped their concern.”

In front of the FERC wave

The line coming into Southcentral would end at the Beluga River gas field, “because by running a pipe to that huge reservoir that provides storage at the end of the line and you can run the pipeline on a continuous basis,” Heinze said. “… And you actually start to recharge some of the reservoir so you build back up the deliverability.” Beluga also has the advantage of the Chugach Electric Association’s gas-fired plant, he said. And the line goes through Palmer, where it could connect to the Enstar 20-inch line. Enstar is the Southcentral gas distribution company.

The ANGDA proposal is “oriented entirely toward what I call the household market — toward heating and electricity. There’s nothing in this for industrial customers,” he said, although if industrial customers show up at an open season, the project scale could be adjusted upward to accommodate them.

Heinze said he’s always been concerned that the in-state portion of the process “was a difficult fit inside the federal open season process.” Because of that, “our thinking has always been that you would try to get … on the front slope of the wave of that open season process.”

To do that Heinze said he’s proposing that after the application is turned in at the beginning of October ANGDA would move right on and keep working with the utilities on workshops on the in-state open season for the fall and winter.

“It would be our intention … once the application is submitted, to drive on immediately to the open season. And by that I mean the in-state open season,” Heinze said.

This would be a negotiated open season: You put a tariff on the table and see who is in at that rate, Heinze said. Then you go back and recalculate the rate at that volume. Six to nine months should be a reasonable amount of time, which means numbers could be available for the spur line about the time somebody really gets serious about a big line, Heinze said.

“We’ve talked about it as a practice open season; it may become more meaningful than practice,” he said.

The problem with ANGDA and the big line

ANGDA shouldn’t apply to build a big line, Heinze said, because it would put the authority in competition with other applicants including the port authority.

At an estimated 250 million cubic feet a day, ANGDA wouldn’t trigger provisions in AGIA that prevent the state from assisting a competitive project — those provisions kick in at 500 million cubic feet a day.

“Done properly, this is a job,” Heinze said of the in-state portion of the project. “Once you start playing the game of going to the North Slope, you’re rolling the dice. And I’m just not comfortable with winning that contest,” he said.

The in-state portion of the project “is within our capability,” especially if ANGDA can get a pipeline company onboard for the project.

“We’ve positioned ourselves at this point very well that we are not a competitor; we are a contributor with anybody and everybody for the good of the state. And I think that’s our strong role at this point,” he said.

“We want to make sure that the in-state part of this absolutely gets nailed,” Heinze said.

And, he said, doing the work for an in-state portion of the project “puts you way down the line” if a 1.25 bcf-per-day bullet line becomes necessary. Dealing with the trans-Alaska oil pipeline owners on the issues around building a gas pipeline along 150 miles of the oil pipeline right of way puts you well along the way toward dealing with issues all along the line because there is nothing dramatically different along the rest of the line, Heinze said.

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ANGDA commissions Cook Inlet energy study

What could annual household energy costs in the Cook Inlet area be in 2025 based on where and how the area gets its energy?

The Alaska Natural Gas Development Authority has contracted with Ecology and Environment to develop and analyze at least five energy scenarios combining gas and electric alternatives for Cook Inlet. The alternatives will be compared based on average annual household energy costs. Natural gas and energy alternatives in the study could include imported liquefied natural gas, coal power and energy efficiency, ANGDA said in its request for proposals.

Harold Heinze, ANGDA chief executive officer, said June 20 at a board meeting in Fairbanks that Ecology and Environment has been selected as the contractor for the study.

It’s a continuation of the work ANGDA did in 2006 with Dunmire Consulting, Heinze said, “but this will be more focused and it will include different mixes of ingredients and … it will give you a fairly good feel for what things are really helping lower the cost to the consumer and what things are not.”

The Dunmire study documented the Cook Inlet energy situation, identified energy supply alternatives and evaluated alternatives to determine the options with the cost possibility of meeting future energy needs cost effectively.

Heinze said he expects that by focusing on the cost of energy to consumers “you’re going to see pretty clearly that the cost of not having a spur line is very high. That in the longer term, bigger picture, having the spur line will lower the bill for you and me; and not having it will allow the bill — in any other case we can think of — to be much higher.”

The report will provide the basis for utilities to go to the regulators, he said, and will also help utilities understand “their individual dilemmas better.”

Heinze has talked in the past about the financial commitment utilities will have to make to commit to purchase North Slope gas (see, for example, “The $5.5B hurdle” in the July 2, 2006, issue of Petroleum News and “A 6-month window” in the Dec. 17, 2006, issue).

Scenarios from coal to renewable energy

Heinze said study will compare scenarios such as coal-fired energy with natural gas and what that does to the cost structure. “It has implications: I can’t heat my house efficiently with a big coal plant because all it can give me is electrons and … I lose all that efficiency.”

In addition to a scenario heavy on coal-fired power, there will probably be a scenario heavy on renewable energy. The idea will be to “emphasize certain types of energy sources or combinations of energy sources,” he said.

The other issue is deliverability, a big issue with differences between summer and winter heating needs. “Some technologies are going to be better at that than others,” Heinze said.

He said ANGDA would work with Ecology and Environment on what the scenarios are, “but basically we want them to feel very comfortable that they have picked a realistic spread of scenarios.”

As for the numbers that come out of the study, Heinze said they’ve considered hiring another contractor just to check the numbers.

The result will be “crucial … not only in a regulatory-political sense but also it becomes critical to financial people.”

“Because I don’t have an energy plan for Cook Inlet I can hold up and say, ‘see right here it says build a spur line.’ … The best we can do right now is to get something that is fairly convincing of what at least the right mix of technologies are,” he said.

—Kristen Nelson