Is there a gas line to the Lower 48 in Alaska’s future? Federal Coordinator Larry Persily, Office of the Federal Coordinator, said at a July 20 press briefing in Anchorage that it depends on market demand for gas.
“Americans want cleaner fuels, they’re paying attention to climate change,” and there is both congressional and presidential support for an Alaska gas line, he said. Persily, appointed to the office by President Barack Obama, said he took the job — which involves coordinating the work of federal agencies on permitting an Alaska gas line, “because I think there’s a chance for an Alaska gas line.”
But Alaskans need to realize that chances for an Alaska gas pipeline would be helped by passage of “comprehensive energy legislation that helps move the nation to natural gas as a preferred fuel for electrical generation,” he said.
“Alaskans need to understand that the hope for an Alaska gas pipeline rests on whether the market needs our gas; it’s just that simple.”
Underpinning the demand growth that would make the line possible are “those large-volume, long-term customers that the project needs; those are electrical utility companies,” Persily said.
There is a chance for an Alaska gas pipeline if the nation turns “to gas as a primary fuel for new power plants.”
He said a recent study by the Interstate Natural Gas Association of America found that if the power load from just half of the oldest, dirtiest U.S. coal-powered plants was switched to natural gas, gas demand would increase by more than 5.5 billion cubic feet a day. (INGAA describes itself on its website — www.ingaa.org — as a trade organization advocating regulatory and legislative positions of importance to the North American natural gas pipeline industry.)
And that replacement would be driven by costs, Persily said, noting that Lansing, Mich., utilities just decided to spend some $200 million to replace a 50-year-old coal-fired power plant rather than the $100 million it would have cost to retrofit the old plant to meet tighter Environmental Protection Agency emissions standards.
Role of shale
Persily said shale gas could play an important role in making those utilities comfortable with converting to natural gas.
While it’s seen as a competitor to Alaska gas, he said “the optimistic way of looking at it is that shale can actually be good for the Alaska pipeline because having that long-term abundant domestic supply is starting to make utilities feel a little more comfortable about going out for long-term gas contracts.”
The days of spikes in the natural gas price to $12 and $14 per thousand cubic feet could be eliminated by shale gas.
“Shale will cut the top off those price spikes, so a utility that would have been scared about going to a new plant with gas” because of the price spikes, is going to feel more comfortable because of the supply of shale gas.
“Then it just becomes, can Alaska gas get into the market at a competitive rate against shale and take some of that demand growth,” Persily said.
He also said that growth in shale gas production is needed to hold production steady because of declines in conventional natural gas production from the Western Canada Sedimentary basin and elsewhere.
The open season
Both the TransCanada-ExxonMobil Alaska Pipeline Project and the BP-ConocoPhillips Denali line are holding open seasons. The TransCanada open season ends July 30; the Denali open season, which started later, ends Oct. 4.
But the close of an open season doesn’t mean that there will be an announcement of the results, Persily said.
“Under the open season process, when a potential natural gas shipper turns in their bids to the potential natural gas pipeline developer, no one gets a copy of the bids,” he said, not FERC, not the State of Alaska.
“Those bids are confidential; they’re a financial proposal from one entity to another.”
The close of the open season signals the start of negotiations between bidders and the project sponsor. Open season bids have conditions, Persily said, comparing them to offers to buy a house, where the potential purchaser can throw in multiple conditions.
Likewise, open season bids can contain any condition the potential shipper wants to include.
Precedent agreements
When a shipper and a project sponsor reach agreement they sign a precedent agreement which is then filed with FERC: Precedent agreements become public after 10 days.
The Alaska Pipeline Project’s schedule says it is seeking to have precedent agreements signed by the end of the year; Denali’s schedule says Feb. 1, 2011.
Persily said what that means is that by the “end of this year, early next year, we’ll know if we’re closer to a deal on a gas line; we’ll know if there are any signed precedent agreements out of the open season.”
Could bidders make their bids public? They could, he said, but since those bids will lay out a bidder’s commercial terms, “where your business is going, how much gas you think you want, where you want to take it off — you probably don’t want your competitors to know what your business plans are for the next 30 years.”
